Adani vs Hindenburg: the words that play havoc with Asia’s richest man- Explained
What is Hindenburg report on Adani ?
Adani vs Hindenburg- On the eve of the 24th day of January, a flash of notifications squandered investors over the globe. The kingdom of Asiatic lions was not ready to believe that they had become the prey of a forensic financial research firm. A report of 106 pages pushed the share of the Adani Group to an unprecedented decline and even crunched the corners for Gautam Adani in the list of the world’s richest persons.
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Some might ask what is the power of just inked black letters, probably Hindenburg Research has made a black-and-white comparison. The group claims that they have ventured a detailed report on the stock manipulation and accounting fraud scheme by the Adani Group of companies. But before diving deep into eye-straining details, it is important to understand what the Hindenburg group does. What are their motto and origin?
What does Hindenburg do?
Before knowing what they do, it would be exciting to know where the name Hindenburg got its origin and how they use their name in the current financial order. In May 1937, there was a hydrogen-powered German airship ‘LZ 129 Hindenburg’ caught fire during its landing procedure in New Jersey, USA. It is also known as the world’s fifth most deadly airship disaster.
After eight decades after this deadly incident, a company specialised in forensic financial research was established. The name was kept by getting inspired by this historic incident.
Why has a company named itself inspired by an accident or disaster?
According to Hindenburg research, they believe that the Hindenburg disaster was the epitome of a man-made disaster that could have been avoided. It is very prudent that if so many individuals are made to sit in a highly flammable gas (hydrogen) balloon then it is a direct call for disaster. The company states that when every piece of evidence is presented then a man-made disaster could be stopped.
The aim that Hindenburg has set is to dedicate itself to the findings of modern-day disasters. The company through its forensic financial research wants to provide efficient and data-driven data to investors for protecting them from financial misgivings.
What do we know about Hindenburg Research?
In 2017, Nathan Anderson founded Hindenburg Research to analyse derivatives, equity and credit in financial markets. It has the aim of being a watchdog for all listed companies globally and keeping a detailed record of their irregularities, mismanagement and undisclosed related-party transactions. The company also takes pride in stating that even they manage its capital in the market by maintaining its report as a cornerstone. According to Hindenburg Research, since 2017, they have dedicated themselves to forensic financial research and found out about the potential financial wrongdoings of 16 companies.
One of the popular prey of such financial reports has been Nikola Motor Company in September 2020. The report claimed that Nikola has been establishing lies regarding their manufacturing of new electric vehicles for getting substantial fundraising from market investors.
The report also claimed that the vehicles that are claimed to be developed in such facilities do not exist in reality and the company is hiding credible facts from the investors. After, such shocking findings Nikola Motor Company’s stock drip down by 40% and U.S. Securities and exchange commission started an inquiry into the firm. Later, Executive Chairman Trevor Milton was found guilty of security fraud.
The report that demolished the house of cards for Gautam Adani
On 24th January, Hindenburg published a report named ‘Adani Group: How the world’s 3rd Richest Man is pulling the largest con in corporate history.’ The report made the fears of investors triggered and the stocks of the Adani Group of companies started to fall like the house of cards had been hit by a blazing wind.
It was a stunner for the group as they had an unforeseeable Panglossian idea regarding their glooming future as they had a Follow on Public Offering (FPO) lined up on the 27th day of January. The company named ‘Adani Enterprises’ was ready to release an open offer of shares worth a whopping Rs. 20,000 crores to its investors.
The financial markets had decided on a different course of action for the Adani Group. After, the release of the Hindenburg report, the Adani Group witnessed a sell-off worth $51 Billion across their various listed companies immediately.
The free fall for Gautam Adani’s net worth was also unprecedented bringing him down from the world’s 3rd richest individual. The report has not just demolished the Adani Group but its tremors have been felt by the entire stock market. Sensex and Nifty have seen a substantial decline since the publication of the report.
What does Hindenburg Report claim against Adani?
It is shocking for every investor and even a side piper that information Hindenburg Research has found bomb-shelled the entire Adani Group. It is also interesting to note that many media reports previously also claimed the irregularities in Adani Group but no substantial damage could be made. But the report of Hindenburg is now, even more, threatening than a summon by financial regulators.
According to Hindenburg Research, a detailed inquiry regarding Gautam Adani and his family members on their financial spending and their account reports was made in a two-year-long research process. The evidence found in a such investigation has formed a constructive thought in the Hindenburg Research to make a clear view regarding the irregularities in the Adani Group of Companies.
Hindenburg allegation on Vinod Adani
The report published by Hindenburg gives a fair share in investigating the role of Gautam Adani’s older brother Vinod Adani. The report claims that Vinod Adani has played a critical role in creating a network of offshore entities that he has in his control. The claim is regarding 38 Mauritius-based shell companies that have actively participated in investing activities worth billions of dollars in Adani Group across India.
It is a well-known fact that Mauritius has been a claimed favourite domain for wealthy Indians to invest and park their cash in such tax havens. The Hindenburg in its report states that such entities are involved in stock-parking practices. In such practices, the selling of shares happens in a way that the disclosure of proper ownership is forgone and price manipulation of stocks can be done easily. It is even claimed to be a prudent way for the process of money laundering through stock markets.
Another critical analysis that Hindenburg Research has presented is regarding concealing ownerships. Forensic financial analysts have identified offshore entities that exclusively hold shares of Adani companies.
One such company that Hindenburg alleges is New Leaina Investments, which held $420 million of shares in an Adani Group company named Adani Green Energy until June-sept 2021. The exclusive reliability of the singular share order makes analysts suspicious of their operations and marks them as irregularities. The Research has also identified a London-based firm named Elara that claims to have a holding worth $3 Billion in Adani Group stocks. And they also claim that Elara has one of its funds holding 99 per cent exclusively in Adani Group Stocks.
What is Hindenburg’s allegation of Adani Group’s operations?
The short-seller also holds a strong claim of stock price manipulation. They allege that the Adani Group has continuously manipulated the share prices of its companies by using offshore entities. The research claims that the Adani Group of companies has been accounted for by the offshore stock parking entities, cultivating stock manipulative practices.
Hindenburg has also sworded against the balance sheet strains, they claim that the debt-capped growth of the Adani Group of companies is not a sustainable one and is bound by many manipulations. The research claims that offshore Mauritius entities funnel money to the Adani Group of companies that are publicly listed through the companies that the Adani Group holds privately.
The exchange between private companies of Adani Group is aiding the balance sheet of another Publicly Listed enterprise of the Adani Group creating a gloomy image of appearing creditworthy for grading agencies.
Hindenburg further questions the financial accounting and auditing standards that are followed by the Group of companies to be out of control. They claim that there is no proper control regarding their financial activities and the employees that are based as an auditor might have a doubted presence to sheal a bigger irregularity.
The report also questions Gautam Adani’s younger brother Rajesh Adani who has been accused of evading Rs.1000 Crore in taxes in the diamond trade. He has also been further promoted to the managing director post in the Adani Group. Even the brother-in-law of Gautam Adani, Samir Vora was accused of the same diamond trading scam and making false statements to regulators. Later, he was given the post of Executive Director of Adani’s Australia division. It is also important to note that all the claims are made by the research as allegations and no individual has been held guilty till the time Hindenburg produced the report.
The total number of questions that Hindenburg Research asks the Adani Group can be numbered 88 and has asked the group to respond to it.
How has Adani responded to the Hindenburg report?
On the 27th day of January, Adani Group published a presentation titled, “Myths of Short Seller”. The Group showcases that they have been very well-rated by credit agencies and have been following all regulations. They have stated that the irregularities that Hindenburg claims would not exist as the requirements of the regulations by the established authority under the law has organized are being met.
The CFO of Adani Group, Mr Jugeshinder Singh states on the 25th day of January that the timing of such a report against the Adani Group holds strong suspicion. The Adani Group was in a process of releasing the FPO of Adani Enterprise worth Rs. 20,000 Crore on the 27th day of January, and the CFO of Adani Group claims that the report was published to tarnish their reputation during the Public offering.
The legal Head of Adani Group on the 26th day of January claims that they shall bring remedial and punitive action against Hindenburg Research. The Group also counters Hindenburg Research’s report by presenting its 403-page long report.
What did Adani respond to Hindenburg?
The Adani Group has stated that the Hindenburg group which is sitting thousand of miles away has developed research that has no credibility or ethics. It states that the report is malafide and done to cause a serious adverse impact on Adani Groups’ investors.
They have claimed that it is important to understand that Hindenburg Research is not a good souled company that investigates to benefit investors innocently, rather it is an admitted short seller that books massive financial gain through wrongful means at the cost of countless investors. They have also marked the research to be a selective and manipulative presentation of matters already in the public domain to create a false narrative.
In the response, the Group states that their companies work in a framework prescribed by the regional law and do not ask for the teachings of foreign institutions. The work done has to be causing suspicion in the eyes of jurisdictional administrative authorities to check the wrongdoings rather than a forensic financial analysing entity.
They claim that out of 88 questions, 65 of them have a direct answer through their financial reports and are available in the public domain when read carefully. The other 18 questions are related to public shareholders and third parties and the Adani Group does not share any locus for the same. And the remaining 5 questions are baseless or based on imaginary fact patterns.
The Hindenburg research analysed the response of the Adani Group and stated that the Group did not answer 62 questions of them. Hindenburg states that Adani Group has filled the information simply pointed to their fillings and declared them to be matters that are settled. The questions that they answered also just largely confirmed what Hindenburg had found in their research. The Research has showcased their concerns that their main question was regarding the offshore entities that were completely left unanswered by the Adani Group.
How much did the Investors of Adani Group suffer?
The Adani group shares have taken a nosedive digging a deep grave for the investment community. The impact can be asserted by analysing the fact that since the report has been published, Gautam Adani’s net worth which had placed him as around 3rd richest person in the Forbes list has now come down to below 20th rank. The Adani Group of companies has almost lost 50% of its value due to the report and over $100 Billion in value has been eroded from the market.
Adani Group’s flagship share Adani Enterprise has suffered a steep decline of over 60%. The situation has further worsened after the group; decided to call off Adani Enterprises’ FPO. Other stocks like Adani Green Energy have suffered a slip of 51%, Adani Total Gas has suffered 58% and Adani Transmission around 50%. The investors have suffered heavy losses in all stocks listed by Adani Group.
How has the stock markets reacted to the Hindenburg Report?
The Adani Group of companies is facing a crisis of losing confidence and trust in their debt and equity. The market is not ready to accept the claims that the Group has mentioned in their responses including the one in their detailed report of 403 pages. The group has started to play all the cards they have in their casket for making the market realise their true potential on long-term bases.
However, the stock market had been left poorer by Rs. 6.8 Lakh crore immediately in that week following the report of Hindenburg Research. The Bank stocks had to take a large setback as the question regarding debt financing was strongly posed by the Hindenburg group and market fears had played its role. The markets have recovered since the 24th day of January but still, continuous pressure is mounted upon the bank stocks that have a considerable debt financing to the Adani Group.
Is the valuation fair for Adani Group?
The current situation would be premature to decide regarding this fraction of the question but a critical analysis can be done by understanding Adani Enterprises FPO. Markets have been fluctuating and do not showcase the real value of assets on the ground that the group owns. A group as huge as Adani can not be analysed by just understanding share prices.
Several reports like the Hindenburg Research could help in assessing the Group’s real value and ethical growth prospects. The FPO of Adani Enterprises did not receive a very strong response initially. The impact of the Hindenburg report was clear and orchestrating. However, on the last day, institutional investors and high-net-worth individuals guarded the falling wall for a while.
The support of such institutions and investors might be stated as a corresponding response but does not allow the research’s fundamentals to be waived off. Famous investors like Tim Buckley and Bill Ackman also showed their concerns regarding Adani Group’s fundamentals.
Investors are cornered to the thought that the valuation of Adani Group is highly overvalued and their investments are frozen blood. International institutions like Credit Suisse and CITI Group has to stop accepting AdaniGroups’ bond as collateral and stop further debt financing.
The fundamental question in mind is regarding the impact that such events have on the National economy that shall affect millions of individuals. The decline in the valuation of AdaniGroups’ share is just a fraction of a larger running elephant. Adani Group currently operates 6 airports, 13 seaports, several road infrastructures, power, renewable energy, gas distribution, real estate, cement, FMCG, Financial Services, and a recently added media house.
The fundamental of the Group can be questioned and argued upon, the stocks can be overvalued but it is unarguable that Adani Group had a direct responsibility in various sectors to develop the economy. The government had also given them wide responsibility in India’s infrastructure development and also given them a huge role in multiple sectors in the Industrial policy decisions. Now after the rounds of allegations and counterattacks are set aside need is to bring up a fair investigation in the jurisdiction of the operational country.
Such reports are disruptive ones as they do not directly assist the agencies in their investigations but rather aim to fulfil their motto. In the case of Hindenburg is the profit that they earn by short-selling the shares. The next decisions that the Adani Group shall make are like a well-timed swoop of a falcon, it is the opportunity to turn down the volume and start working on the aimed projects and letting their work strike and destroy its victim.
However, on February 8, a lot of improvement is being seen in the shares of Adani Group. Shares of Adani Enterprises and Adani Ports jumped over 5%. What do you think about Adani Group, please tell us by writing in the comment box.
This article will be continued…..
click here to read full report on adani
Written By- DEVYA SHAH)
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