WHO IS GAUTAM ADANI AND WHY IS HE CONTROVERSIAL?

The firm has alleged that the Adani Group has engaged in a “brazen stock manipulation and accounting fraud scheme over the course of decades”.

Hindenburg Research based its assessment on a two-year investigation during which it says it reviewed thousands of documents, conducted site visits in almost half a dozen countries, and spoke with dozens of individuals, including former senior executives of the Adani Group.

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Here are some concerns the short seller has raised:

• Key listed Adani companies have “substantial debt”, and some have pledged shares of their stock for loans. Five of seven key listed companies have reported “current ratios” below 1, indicating near-term liquidity pressure.
• The Adani Group uses a web of firms in tax havens to inflate revenue and stock prices and also provide cushioning to capital balances in order to make listed entities appear more creditworthy.
• Offshore shells and funds tied to the Adani Group comprise many of the largest “public”, non-promoter holders of Adani stock.
• The group had “virtually non-existent financial controls” and listed Adani businesses have seen sustained turnover in the role of the chief financial officer (CFO) — including its flagship company, Adani Enterprises, which has had five CFOs over eight years, a red flag for accounting issues.
• The independent auditor for Adani Enterprises and Adani Total Gas is a tiny firm called Shah Dhandaria, which has no current website, four partners and 11 employees. The Hindenburg report said it “hardly seems capable of complex audit work”. The audit partners at Shah Dhandharia, who respectively signed off on the annual audits for Adani Enterprises and Adani Total Gas, were as young as 24 and 23 years old when they started. “They were essentially fresh out of school, hardly in a position to scrutinize and hold to account the financials of some of the largest companies in the country, run by one of its most powerful individuals,” the report said.
• The report alleged that Adani family members cooperated to create offshore shell entities in tax-haven jurisdictions like Mauritius, the United Arab Emirates and several Caribbean islands, generating forged import/export documentation in an apparent effort to spur fake or illegitimate turnover and siphon money from the listed companies. It also cited previous fraud investigations by the Indian government, which have alleged money laundering, theft of taxpayer funds and corruption, totalling an estimated $17bn.

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What has Adani said about the allegations?

The Adani Group said the report was issued with a “mala fide [bad faith] intention” to damage its reputation, days before the group was set to hold a public secondary share sale to raise $2.5bn, the largest such sale in the country. The Adani Group has alleged that the report’s “principal objective” was to derail the share offer.

What has happened since the report came out?

Adani’s secondary share sale was fully subscribed, but in a shocking reversal, the group called it off, marking a stunning setback for founder Gautam Adani and sending his stocks plunging further. About $112bn have been shaved collectively off the group’s various listed firms so far, taking Adani’s personal wealth down as well.

While calling off the secondary share sale, Adani said the group will review its capital market strategy once the markets stabilise.

It is not clear when that will happen as the group’s stocks continue to nosedive. The stock market rout triggered a series of credit rating warnings from the agency Moody’s, which says that the group may struggle to raise capital. The market index S&P has also cut its credit outlook for two Adani Group companies, raising fears of contagion for the rest of the stock market.

In the meantime, legislators from India’s main opposition parties have kicked off protests at some state-run companies with ties to the Adani Group firms and have demanded an investigation into the group.

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What next?

The Indian markets regulator is examining the crash in shares as well as probing for any irregularities in the $2.5bn share sale, the Reuters news agency has reported.

To calm investors’ nerves, the Adani Group on Monday made a prepayment of $1.11bn towards loans ahead of their maturity in 2024, releasing shares that had been pledged by the family as collateral. But it is too soon to say how far that step will go in assuaging investor concerns.

While Adani’s net worth has tanked more than half to $61.7bn in less than two weeks, he is still one of the most powerful people in the world, with vast businesses in key sectors in India, employing more than 23,000 people. It is unlikely that he will go away anytime soon.