[February 15, 2023](Comprehensive report by Epoch Times reporter Yi Fan) India andrichest man in asiaAdani(Gautam Adani) recently encountered a major crisis.In a few days, his business lost more than $100 billion in market value, all from a smallShort institutionsReport.
AdaniThe Adani Group was founded in 1988 as a commodities trading house and expanded through acquisitions with the backing of Prime Minister Narendra Modi. Adani has spent four decades building a business empire spanning energy, agribusiness, real estate and defense.
In 2022, while the fortunes of many billionaires are shrinking, Adani’s fortunes will soar by $44 billion. On September 14 of the same year, with a net worth of US$150.6 billion, he once surpassed Jeff Bezos, the founder and chairman of Amazon, and became the third richest man in the world.
As Adani’s conglomerate diversifies and expands globally, he has received all kinds of attention, including scrutiny.On January 24 this year, the United StatesShort institutionsHindenburg(Hindenburg Research) released a lengthy report, “How the World’s Third Richest Man Pulled Off the Biggest Fraud in History.”
In a report of more than 100 pages,HindenburgA series of extraordinary allegations have been made against the Adani Group. The two-year investigation found the group’s “brazen stock manipulation and accounting fraud” stretched back decades, the report said.
The report’s key allegation is that people close to Adani used offshoreshell companyA network of people buys and sells his company’s stock and pumps up the stock price or injects money into them in order to make his company appear more credible. Hindenburg believed that by making the business appear more valuable, Adani Group could attract more investment or obtain more loans backed by stock.
who was hindenburg
Short-selling institutions often issue research reports through analysis, due diligence, etc., provide relevant information to the market, and make profits by betting on the decline of stock prices.
New York-based Hindenburg is one such investment research firm that focuses on short selling. The company, named after the German airship Hindenburg that exploded in 1937, said its mission was to point out “man-made disasters” that were bound to explode. The Hindenburg was the largest aircraft in the world at the time, equivalent to the Titanic of the airship world.
The Hindenburg Research Institute in New York has only been established for five years and has only a dozen employees. Nathan Anderson, the founder of Hindenburg, is famous for analyzing stock declines. Anderson, 38, used to work for a financial analysis firm, checking potential deals for investment firms of wealthy families. His passion, he says, is “spotting scams”.
Since 2020, Hindenburg has targeted about 30 companies. According to calculations by Bloomberg, the stocks of these companies will fall by an average of about 26% after six months of shorting.
Most notably, Hindenburg shorted electric car maker Nikola Corp, whose shares subsequently plunged more than 90%. The short-seller’s success has raised investor questions about Nikola, whose founder, Trevor Milton, was eventually convicted last October of defrauding investors.
Adani Group is obviously the biggest “elephant” that Hindenburg has shorted so far.
Failed to sell shares
The release of Hindenburg’s short-selling report is just before Adani’s flagship company Adani Enterprises Ltd (Adani Enterprises Ltd) publicly offered shares to investors. Adani Enterprises Ltd. is seeking to raise 200 billion rubles ($2.5 billion), India’s largest ever follow-on offering (not an IPO). The timing of Hindenburg’s report is considered no accident.
On February 9, Bloomberg quoted insiders and reported that Adani Group originally planned to refute Hindenburg one by one after the stock sale. But a sense of urgency gripped Adani headquarters as the stock price began to fall. A few days later, the company issued a response.
Adani Group countered that Hindenburg’s report was full of stale and baseless allegations by short sellers seeking “improper gains”. The appendix responses run to more than 400 pages.
Documents from both sides lay out complex business dealings in dizzying detail. That’s a lot of information for any professional, let alone the average investor. People cannot tell who is right and who is wrong.
On Jan. 31, the closing price of Adani Enterprises Ltd. shares was 4.4 percent below the IPO price. On the second day, the closing price was more than 30% lower than the subscription range. Anxious investors called the Adani team to express concern. It is reported that one of Adani’s main investors, Royal Group (Royal Group), a billionaire family business in the United Arab Emirates, has urged Adani Group to reconsider the stake sale.
That night, Adani Enterprises Limited’s new share offering was called off. Adani said in the video, “Our board strongly believes that it is not morally right to proceed with (the share sale).”
India’s largest ever follow-on share sale fizzled.
Fell outrichest man in asia
Hours after canceling the share sale, Adani reiterated in a televised address that the company’s fundamentals are strong and its balance sheet is healthy, and that the decision will not affect existing operations and future plans. Adani also assured investors that everything will be fine.
However, Adani’s shares continued to plummet after Mumbai’s stock market opened on February 2. A week after the release of the Hindenburg short report, a group of Adani-related companies lost more than $90 billion in market value. As of February 8, total losses amounted to $109 billion. Before that, the companies were worth about $236 billion.
Adani’s personal losses also reached $58 billion, which is almost half of his fortune. At this time, he is no longer the richest man in India, let alone Asia.
The turmoil has not only hit Adani Group’s shares hard, but also the banks that lend to the companies. Shares in the government-controlled State Bank of India have fallen more than 10 percent since the Hindenburg report was released.
As things unfolded, broader Indian stock market indexes also tumbled, with the ruble falling against all Asian currencies. Some even argued that Hindenburg’s report amounted to an attack on India itself.
Shake investor confidence in India
Adani has been a pillar of Prime Minister Narendra Modi’s “Make in India” campaign, which aims to develop the country’s infrastructure and manufacturing. Since Modi came to power, Adani has become a poster child for the Indian government’s use of private capital to promote infrastructure development and domestic manufacturing.
Modi and Adani are from the same state, and the two have been close since the early 2000s. What Modi advocates, Adani builds. Adani’s investments in capital-intensive projects such as airports, power plants and data centers are at the heart of Modi’s economic growth agenda. Aligning his own business interests with Modi’s development goals, Adani linked his company’s fortunes to that of India.
So when Adani Group is questioned, Modi is also challenged. India’s opposition parties have publicly called for an investigation into Hindenburg’s allegations of fraud and market manipulation against the Adani group, saying the Modi government fears discussions of their calls for an investigation.
The short-seller attack not only plunged Adani into the worst crisis of his corporate career, but also raised questions about India’s credibility as a global growth engine and destination for international investment.
International investors may have a major reassessment of the risks of investing in Indian stocks, said Gary Dugan, chief executive of Singapore-based asset manager and financial advisory firm Global CIO Office.
Three weeks after the incident, the share price had partly rebounded as Adani and his family prepaid $1.11 billion in debt. But the eyes of the global market are still focused on Adani.
As of press time, India’s markets regulator, the Securities and Exchange Board of India, has begun investigating any potential irregularities in Adani Group’s stake sale.
Editor in charge: Lian Shuhua