New Delhi: Adani Group companies witnessed a tough day on the bourses on Wednesday after a US-based forensic financial research report claimed that it has engaged in a "brazen stock manipulation and accounting fraud scheme" over the course of decades. While Adani Group companies' shares plunged by 1 to 6 percent, seven Adani Group companies lost Rs 46,086 crore in market capitalisation by Wednesday afternoon. In a report published on January 24 after a two-year-long investigation, Hindenburg Research said, "Key listed Adani companies have also taken on substantial debt, including pledging shares of their inflated stock for loans, putting the entire group on precarious financial footing. 5 of 7 key listed companies have reported 'current ratios' below 1, indicating near-term liquidity pressure."
"Even if you ignore the findings of our investigation and take the financials of Adani Group at face value, its seven key listed companies have 85 percent downside purely on a fundamental basis owing to sky-high valuations," the report said.
According to the Hindenburg Research report, Gautam Adani, the founder and chairman of the Adani Group, has a net worth of about $120 billion, which he has increased by over $100 billion in the last three years primarily as a result of stock price growth in the group's seven most important publicly traded companies, which have increased by an average of 819 percent during that time. It added that the report was prepared after two-year-long investigations that involved speaking with dozens of individuals, including former senior executives of the Adani Group, reviewing thousands of documents, and conducting diligence site visits in almost half a dozen countries.
Accusing Adani Group companies of stock manipulation, the report said, "Evidence of stock manipulation in Adani listed companies shouldn't come as a surprise. SEBI has investigated and prosecuted more than 70 entities and individuals over the years, including Adani promoters, for pumping Adani Enterprises' stock."
Quoting a 2007 SEBI ruling, the report stated that "the charges levelled against promoters of Adani that they aided and abetted Ketan Parekh entities in manipulating the scrip of Adani stand proved." Ketan Parekh is perhaps India's most notorious stock market manipulator. Adani Group entities originally received bans for their roles, but those were later reduced to fines, a show of government leniency toward the Group that has become a decades-long pattern.
As part of our investigation, we interviewed an individual who was banned from trading on Indian markets for stock manipulation via Mauritius-based funds. He told us that he knew Ketan Parekh personally, and that little has changed, explaining "all the previous clients are still loyal to Ketan and are still working with Ketan," said the report.
The independent auditor for Adani Enterprises and Adani Total Gas is a tiny firm called Shah Dhandharia, said the report. Shah Dhandharia seems to have no current website. Historical archives of its website show that it had only four partners and 11 employees. Records show it pays Rs 32,000 (US $435 in 2021) in monthly office rent. The only other listed entity we found that it audits has a market capitalisation of about Rs 640 million (U.S. $7.8 million).
Shah Dhandharia hardly seems capable of complex audit work. Adani Enterprises alone has 156 subsidiaries and many more joint ventures and affiliates, for example. Further, Adani's 7 key listed entities collectively have 578 subsidiaries and have engaged in a total of 6,025 separate related-party transactions in fiscal year 2022 alone, per BSE disclosures.
"The audit partners at Shah Dhandharia who respectively signed off on Adani Enterprises and Adani Total Gas' annual audits were as young as 24 and 23 years old when they began approving the audits. 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," said the report.
In an official statement released on Wednesday, Adani Group term the Hindernburg report malicious. "We are shocked that Hindenburg Research has published a report on 24 January 2023 without making any attempt to contact us or verify the factual matrix. The report is a malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India's highest courts," said Adani Group's CFO Jugeshinder Singh.