Asia’s richest man, Gautam Adani, saw his companies lose $68 billion in market value after short-selling firm Hindenburg Research accused him of “pulling the biggest scam in corporate history,” which which triggered a sell-off in Adani’s shares.
Last week’s report from the US-based Hindenburg attacked India’s second-biggest conglomerate for alleged share price manipulation and fraud just as the group began a share offering aimed at raising $2.5 billion.
Adani, 60, has since gone from being the world’s third-richest man to 11th-richest as his net worth dropped by more than $30 billion to an estimated $84 billion, according to the Billionaires Index. from Bloomberg.
The son of a middle-class family in Ahmedabad, in the western Indian state of Gujarat, Adani left university to become a diamond dealer in Mumbai, India’s financial capital. In the 1980s, he began importing plastics before establishing Adani Enterprises, which dealt in everything from shoes to buckets. It remains his flagship company.
India opened up its economy in the 1990s and a new middle class emerged as tens of millions of people escaped poverty and the economy boomed, prompting Adani to bet on infrastructure and coal.
Adani’s first major project, the Mundra Port in Gujarat, opened in 1998 and is now the largest in India. Adani Ports and Special Economic Zone Ltd. is the largest private port operator in India. Within a decade, Adani became India’s largest coal mine developer and operator. It has expanded into Australia and Indonesia and, according to the Adani Power website, is on its way to becoming “one of the largest mining pools in the world.”
Adani’s companies operate airports in major cities, build roads, generate electricity, make defense equipment, develop agricultural drones, sell cooking oil and run a media outlet.
Despite his roots in fossil fuels, billionaire Adani Green aims to become the world’s biggest renewable energy player by 2030.
Adani’s net worth has skyrocketed by about 2,000 percent in recent years as the share prices of his publicly traded companies have skyrocketed.
His critics say much of his success is due to his close ties to the government and to Prime Minister Narendra Modi, who has at times campaigned using an Adani plane. They have accused the government of adjusting the bidding rules to make it easier for Adani to win contracts to operate airports, for example. The company denies this, saying the contracts were won fairly through a transparent process.
Before Modi took office, Adani was a friend of the rival Congress Party, which ruled the state of Gujarat, where many of his early projects began. Adani has been “close to all the politicians in power,” RN Bhaskar, a journalist who wrote a biography of Adani, told The Associated Press.
Adani’s supporters say he has cleverly aligned the group’s priorities with those of the government by investing in key industries such as renewable energy, defense and agriculture. And its projects abroad, in strategically important countries like neighboring Sri Lanka, help New Delhi compete with rival Beijing in the region.
Companies in the Adani Group lost about $68 billion, according to Bloomberg estimates, after Hindenburg Research released its report last week. The short selling firm says it spent two years investigating the Adani group and concluded that the seven Adani-listed companies were overvalued, with an “85% downside risk.” The report cited information from former Adani executives, thousands of documents and other research.
The main accusations against the conglomerate include stock price manipulation and accounting fraud, among other abuses. The report alleges that the Adani Group has used offshore shell companies linked to Adani’s family to drive up share prices. He posed 88 questions for Adani to answer.
Five-year-old Hindenburg, led by Nathan Anderson, drew attention in 2020 when it accused electric vehicle maker Nikola of lying and misrepresenting its technology. Nikola’s founder was found guilty of fraud last year.
The Adani group rejected Hindenburg’s allegations and issued a 413-page report that rejected his questions, saying none of them were “based on independent or journalistic research.” Adani’s response included documents and data tables and said the group has made all necessary regulatory disclosures and complied with local laws.
Hindenburg responded by saying that Adani had answered only 26 of his 88 questions and did not address many of the issues he raised.
Adani has said that he was considering taking legal action. Hindenburg welcomed the idea, saying a US legal challenge could give him access to documents related to Adani’s business dealings.
Hindenburg’s report raised concerns about broader issues and prompted investors to divest Adani Group shares. Since January 25, the flagship company, Adani Enterprises, and others in the group have plunged as much as 20 percent in a single day.
Some analysts said that if the issues raised by Hindenburg are found to be true, that could hurt financial institutions and banks from which the group has borrowed.
But Aveek Mitra, founder of Aveksat Financial Advisory, says he thinks the situation will only cause “a few days of confusion.” Hindenburg has raised important questions about Adani’s stock valuations, but that doesn’t mean his entire business or assets are “a sham,” he said.
The Adani Enterprises share offering was fully subscribed late on Tuesday, suggesting that the company still has support. Still, shares of three of Adani’s companies fell 5 to 10 percent.
“If the stock continues to fall, Adani, as a businessman, will need to take that into account and see where and how to invest next,” Mitra said.
“It could also increase scrutiny, as lenders may require more collateral, which could make the company more careful,” he said. “But whether this is a setback or a temporary problem for Adani, that’s the trillion dollar question.”