Compiled by Ayush Thakkar
24th January 2023, a New York based short seller Hindenburg Research published its report on Adani group of companies accusing them of “brazen” market manipulation and accounting fraud stating that a web of tax haven-controlled offshore shell companies controlled by the Adani family was utilized to enable money laundering, tax fraud, and corruption. \
Let’s understand the Adani vs Hindenburg crises in detail:
Adani Group is a diversified organization in India comprising 7 publicly traded companies
Adani group was founded by Mr. Gautam Adani in 1988 as a commodity trading business, with flagship company Adani Enterprises. Hindenburg Research LLC founded by Nathan Anderson in 2017 is an activist short-selling-focused investment research company situated in New York city.
According to the research conducted by Hindenburg Research, Gautam Adani, the group’s founder and chairman, has increased his net worth by over $100 billion over the past three years. This increase is largely attributed to the group’s seven major listed companies, whose stock prices have increased by about 819% during that time. Adani, who until recently had the title of richest Indian in the world, has since dropped to position 25 on Forbes’ Real-Time Billionaires list for 2023 as a result of the publication of this study.
The report published by Hindenburg consists of 32000 words approximately more than 100 pages which alleged the group of taking substantial debt, including pledging shares of their overvalued stocks to get loan. Additionally, they noted in their study that seven Adani Group listed firms have 85% downside potential on a fundamental basis as a result of what they referred to as “sky-high valuations.” The report mentioned that ‘Current ratios’ below 1 were reported by 5 of 7 significant listed corporations, indicating short-term liquidity pressure.
According to the research, family members of Gautam Adani, the founder and chairman of the Adani Group, hold 8 of the group’s 22 significant positions. At the end of the report Hindenburg Research asked some questions like
a) Mr. Rajesh Adani brother of Gautam Adani who was subsequently arrested twice over allegations of customs tax evasion, forging import documentation and illegal coal imports, why was he promoted as Managing Director of Adani group? b) Samir Vora, Gautam Adani’s brother-in-law, was charged by the DRI with leading a diamond trade scheme and making many false claims to authorities. Why then was he elevated to Executive Director of the crucial Adani Australia business? c) What has been Vinod Adani’s position in the Adani Group’s total scope up to this point, including all responsibilities on transactions and organizations’ that have done business with the Adani Group?
Since Hindenburg accused the Adani Group of stock manipulation, inappropriate use of tax havens, money laundering, and growing indebtedness, the group has lost $118 billion in 10 days, a 50% loss.
It has been said that the timeline of Hindenburg’s report and all the activities that played out was an attack on Indian economy.
- 25th January,2023: Hindenburg tweeted that they are going to reveal the largest corporate scam of India in which they have taken short position. Later that tweet was taken down from internet and they started a twitter thread about how Adani group is a fraud and that their financials are complete mess. They published their report just some days before the launch of the FPO of Adani Enterprises of 20000crores and approximately 1 week before the budget announcement in India.
- 27th January,2023: As a result of Hindenburg report the FPO got 1% subscribed by the retail Investors on first day.
- 29th January,2023: Adani Group provided a thorough response that included its governance standards, credentials, creditworthiness, best practices, transparent conduct, financial and operational performance and stated that this is an attack on Indian economy.
- 31st January,2023: FPO got fully subscribed where the major chunk was invested by institutional investors.
- 1st February,2023: On budget day, Credit Suisse a Switzerland-based investment bank said that it has stopped accepting Adani Group bonds as collateral for margin loans.
As a result, of this news Adani stocks dropped to a greater extent and the adani group took back their FPO. After Credit Suisse, Citigroup & Standard Chartered stopped accepting Adani dollar bonds.
- 2nd February,2023: As a result of these kind of news & reports bloodbath in adani stocks kept on continuing straight for 2 to 3 days. Adani enterprises which were trading at 4000 before the Hindenburg report came out traded at around 1000.
- 3rd February,2023: Adani Enterprise almost rose by 40-50% to 1500 on that day and till 8th February it rose to 2200.
All of this was happening and one party who was at winning side was Hindenburg Research because they said earlier that they took short position on Adani group stocks.
There were some speculations made out of this situation that the Hindenburg report was legitimate because of the inflated financials of the adani stocks and the amount of debt they have raised from the banks. On the other hand, there were also speculations made by some researchers that this is simply an attack on Indian economy because of the chronology of the events that were taking place.
At present situation the Adani stocks have recovered to some extent after hitting the Rock-bottom. It can be said that this recovery is because of the short-covering. In plain English Short Covering indicates that the trade was previously shorted and that they had to buy to square up their positions. People start buying since there are so many new short positions in the market, which causes the market to become positive.
Let’s have a look at What does experts say about Adani Now –
Richa Agarwal Editor and Research Analyst at Equity Master does not recommend to buy the dip in Adani Group stocks.
According to Arihan Capital Market, Adani Enterprises is witnessing a pull-back rally in a downtrend and is likely to attract selling pressure.
Ankit Jain, Partner at Ved Jain and Associates said that he doesn’t advise to buy Adani stocks for short-term unless one wants to speculate. For Log-term investors, one must select the right stock from the bouquet of shares in Adani group.
Some experts believe not to lay hands in Adani stocks now, while some think that certain group companies are worth buying the dip.
To conclude in short, this saga between Adani & Hindenburg is very unpredictable because there are large players involved in this game and to come at one conclusion is very difficult because every day a new story rolls out and has an impact on the Indian Stock Market drastically. All of this is happening but the party which suffers the most is COMMON MAN because we are the ones whose money is getting fluctuated on daily basis.