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HomeEconomyAdani-Hindenburg row erupts into war of words, neither side backing down

Adani-Hindenburg row erupts into war of words, neither side backing down

Adani Group calls Hindenburg allegations baseless, unethical, and in violation of law while the firm says Adani obfuscating truth, avoiding real issues of fraud.

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The Adani-Hindenburg dispute escalated into a war of words over the weekend, with Adani Enterprises issuing a 413-page reply late Sunday to Hindenburg Research’s original accusations, calling the company the “Madoffs of Manhattan.” In the statement the group said that the research firm’s report is “a malicious combination of selective misinformation and concealed facts relating to baseless and discredited allegations to drive an ulterior motive.”

Hindenburg Research was quick to respond to Adani’s reply, uploading its own rebuttal on Monday morning, saying that “in terms of substance, Adani’s ‘413-page’ response only included about 30 pages focused on issues related to our report.” 

The remainder of the response, Hindenburg states, consisted of 330 pages of court records, and 53 pages of high-level financials, general information, and “details on irrelevant corporate initiatives, such as how it encourages female entrepreneurship and the production of safe vegetables”.

Adani has accused Hindenburg of being unethical, and in violation of securities and foreign exchange laws, which Hindenburg disclosed in its original report. The research firm, for its part, said the Adani Group has side-stepped the most serious allegations it has made – those regarding Chairman Gautam Adani’s elder brother Vinod Adani, his alleged shell companies, and their alleged dealings with the Adani Group firms.

This issue has reached this juncture following last week’s report by Hindenburg Research alleging that the Adani Group had indulged in corporate malpractice, resulting in an overinflated stock price and highly leveraged group companies. Adani issued a quick response soon after that release, dismissing the allegations and threatening legal action against Hindenburg, something that failed to make Hindenburg back down. 

In the meantime, the listed entities of the Adani Group saw their share prices fall sharply on Wednesday, the day after the original report was released, and extended this fall on Friday after markets reopened following the Republic Day holiday. Over the two days of trading, the listed Adani companies lost a combined Rs 4.17 lakh crore in market capitalisation. 

The ramifications of the matter go beyond just stock prices. It has also resulted in a decidedly poor response to Adani Enterprises’ Follow-On Public Offer (FPO) and provided the Congress Party with another area of attack against the Modi government over its alleged close relationship and tacit backing of the Adani Group.

Also read: Adani Enterprises, Adani Ports recover in morning trade

A battle over ‘India’

In its response on Sunday, the Adani Group made the claim that Hindenburg’s report was not just an attack against a specific company but “a calculated attack on India, the independence, integrity, and quality of Indian institutions, and the growth story and ambition of India.”

Hindenburg, in its subsequent response, said that the conglomerate was trying to conflate the rise of its chairman, Gautam Adani, with the success of India itself.

“To be clear, we believe India is a vibrant democracy and an emerging superpower with an exciting future,” Hindenburg said, adding that they also believe India’s future is being held back by the Adani Group, which has “draped itself in the Indian flag while systematically looting the nation.”

“We also believe that fraud is fraud, even when it’s perpetrated by one of the wealthiest individuals in the world,” it added.

To & fro over allegations

Overall, the Adani response pointed out that the bulk of the issues raised by Hindenburg have already been disclosed by the Adani companies, while the rest either pertain to unrelated companies or are baseless allegations.

“The (Hindenburg) report seeks answers to “88 questions” – 65 of these relate to matters that have been duly disclosed by Adani Portfolio companies in their annual reports available on their websites, offering memorandums, financial statements and stock exchange disclosures from time to time,” the Adani response said. “Of the balance 23 questions, 18 relate to public shareholders and third parties (and not the Adani portfolio companies), while the balance 5 are baseless allegations based on imaginary fact patterns.”

Nevertheless, the group said it would endeavour to answer all of the 88 questions, something Hindenburg said it had failed to do.

“Our report asked 88 specific questions of the Adani Group,” Hindenburg said. “In its response, Adani failed to specifically answer 62 of them. Instead, it mainly grouped questions together in categories and provided generalised deflections.”

It added that in other instances, Adani simply pointed to its own filings and declared the questions or relevant matters settled, again failing to substantively address the issues raised. “Of the few questions it did answer, its responses largely confirmed our findings, as we detail.”

Issues of dealings with brother

Hindenburg said that the Adani Group in particular failed to answer questions relating to the most serious allegation made in its report – that the Adani Group had engaged in billions of dollars’ worth of suspicious dealings with Gautam Adani’s brother Vinod Adani, involving numerous offshore shell companies. These dealings, Hindenburg said, “raised serious questions about stock and accounting manipulation”. 

The report cites numerous instances where companies based in Mauritius and allegedly owned by Vinod Adani had dealings with the part of the Adani Group, which were undisclosed.

For example, in questions 40, 42, 48, and 50 (and several others), Hindenburg asks about transactions that allegedly took place between Adani companies and  Krunal Trade & Investment, Vakoder, Rehvar Infrastructure, Milestone Tradelink, and Gardenia Trade and Investment – all Mauritius-based companies – and all transactions that were allegedly not disclosed to Indian regulators.

“The above cited transactions with Krunal Trade & Investment, Vakoder, Rehvar Infrastructure, Milestone Tradelink, Gardenia Trade and Investment, and the ‘private Adani entities’ are not ‘related party transactions’ under Indian laws or accounting standards,” Adani said in its response to this set of questions. “Consequently, we are neither aware nor required to be aware of their ‘source of funds’.”

Hindenburg raised major issues with this line of reasoning, claiming that although it had provided detailed proof demonstrating the existence of numerous shell companies allegedly owned by Vinod Adani, the Adani Group response simply side-stepped the familial relationship rather than denying that the transactions took place.

“In other words, we are expected to believe that Gautam Adani has no idea why his brother Vinod lent massive sums of money to Adani entities, and no idea where the money originated from,” the report added.

“If any of that were true, Gautam could easily clear up the mystery by calling his brother, or asking him at the next family dinner, why he has been directing billions of dollars to Adani-controlled entities through a network of opaque offshore shell entities,” it said. “He could also call the head of his own Family Investment Office and ask the same.”

Also read: Indian shares volatile as key Adani stocks arrest slide

Attack on Hindenburg

In its response, the Adani Group also launched an attack on the research firm, claiming that, as a short-seller, it had ulterior motives that were unethical. A short-seller is basically a stock market operator who takes a position such that they benefit from the fall in price of a particular stock, such as what happened with the Adani stocks.

“After extensive research, we have taken a short position in Adani Group Companies through the U.S.-traded bonds and non-Indian-traded derivative instruments,” Hindenburg had disclosed in its original report on the Adani Group.

To which the conglomerate replied, “Hindenburg has not published this report for any altruistic reasons but purely out of selfish motives and in flagrant breach of applicable securities and foreign exchange laws.

It added that the research firm took ‘short positions’ and then, to effect a downward spiral of share price and make a wrongful gain, Hindenburg published a document to manipulate and depress the price of stock, and create a false market. 

“The allegations and insinuations, which were presented as fact, spread like fire, wiping off a large amount of investor wealth and netting a profit for Hindenburg,” the group said. “The net result is that public investors lose and Hindenburg makes a windfall gain. Thus, the report is neither ‘independent’ nor ‘objective’ nor ‘well researched’.”

(Edited by Tarannum Khan)

Also read: Adani group’s market loss swells to $65 billion in short-seller attack aftermath


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