- By Swakrit Banik
Hindenburg Research, a U.S.-based financial research firm, issued a critical assessment on the Adani Group on January 24, 2023. According to Hindenburg, the Adani Group study report was created following a two-year inquiry of the group's finances, transactions, and operations.
The Indian conglomerate, according to Hindenburg Research, "engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades." Such stock price manipulation, according to Hindenburg, was allegedly carried out by utilising offshore shell firms related to Adani's family to acquire Adani Group shares and drive up their values. This disclosure sent the markets into a tailspin, resulting in an unprecedented collapse of Adani Group equities. In addition to triggering a large reduction in practically all Adani group firms, the study drew the attention of regulatory agencies such as the capital markets regulator, the Securities and Exchange Board of India (SEBI), and the banking regulator, the Reserve Bank of India (RBI).
THE KEYFINDINGS OF HINDENBURG RESEARCH REPORT
Hindenburg Research's study on the Adani firm goes into great depth regarding the significant red flags that the company discovered after doing an exhaustive examination into the firm. Some of the report's conclusions are summarised below.
In terms of the Price to Earnings (P/E) and Price to Sales ratios, 7 of the Adani Group's firms listed on Indian stock markets are overpriced by more than 85%.
Many of the Adani Group's publicly traded firms are highly leveraged, which means they have taken on considerable amounts of debt in comparison to their equity and cash reserves.
Five of the Adani Group firms have current ratios of less than one, putting them at significant danger of not being able to satisfy their short-term commitments.
Multiple suspect trading patterns were observed in various Adani Group firms, including Adani Enterprises, Adani Transmission, and Adani Power, among others, with suspicious off-shore and stock parking entities accounting for more than 33% of total delivery volume (shares acquired)
In addition to these substantial findings, the Hindenburg Research study looks deeper into the Adani Group's stock manipulation tactics and the corporate maze it constructed to move money into and out of its enterprises. At the completion of the research, Hindenburg also submitted a set of 88 questions to the Adani Group, pressuring them to provide answers.
HOW DID THE ADANI GROUP RESPOND?
In response to Hindenburg's investigation report, the Adani Group quickly issued a 413-page study. The Adani Group angrily denied all of Hindenburg's conclusions and 88 questions, claiming that none of them were "based on independent or journalistic fact-finding."
Furthermore, Adani Group's 413-page response comprised several data points and documents and stated that all of the group's subsidiaries had complied with Indian laws and made all needed disclosures to regulatory authorities. After reviewing the Adani Group’s answer, Hindenburg Research stated that just roughly 26 of the 88 issues given by them were addressed, with many of them being disregarded.
Hindenburg has also publicly acknowledged to holding short bets in many Adani group entities. These stakes are held in a variety of securities, including non-Indian derivatives and US-traded bonds. Surprisingly, such tools are not regulated by the Indian authorities.
IMPACT OF THE REPORT ON ADANI ENTERPRISES FPO
The large shadow thrown by the Hindenburg Research study on Adani Enterprises' Follow-On Public Offer (FPO) was one of the research's key ramifications. Because the study was released only days before Adani Enterprises' FPO went online, many retail investors were hesitant to invest in it. Furthermore, because Adani Enterprises' share price had declined to roughly Rs. 2,761 per share, the pricing of the FPO, which was Rs. 3,112 to Rs. 3,276 per share, looked to be excessively expensive.
However, just when Adani Enterprises' Rs. 20,000 crores FPO appeared to be in jeopardy, it was revealed that the whole issuance had been oversubscribed. Although the bulk of retail investors declined to subscribe to the company's FPO, institutional investors and other domestic organisations stepped in to do so. However, Adani Enterprises said in a sudden turnaround that it had cancelled the FPO and would return all earnings to investors within a few days. The business argued that the investors' interests are important and that it would be immoral to subject them to financial losses as a result of the Adani Enterprises stock crash.
The repercussions from the scathing discoveries in the Hindenburg Research investigation has undoubtedly sent shockwaves through the Indian financial and political sectors, casting doubt on the country's regulatory authorities' integrity. The Indian National Congress (INC), the major opposition party, has demanded that the Supreme Court or a Joint Parliamentary Committee conduct a thorough probe of the Adani Group and its operations.
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