India’s Enron moment? Gautam Adani slips to 30th position, group shares lose ₹12 lakh crore in 1 month

Gautam Adani was a month ago the world’s third-richest man and Asia’s richest man, but a damning report from a US firm triggered a massive sell-off in shares of his apples-to-airport conglomerate, knocking off his own fortune by $80 billion. The dollar fell down and the tycoon fell down. No. 30 on the World Billionaires Index.

Mr Adani’s sprawling conglomerate, which spans from sea ports to airports, edible oil and commodities, energy, cement and data centres, is under attack by US short-seller Hindenburg Research, which in 2020 announced plans to launch the electric-vehicle Successfully failed the manufacturer Nikola Motors.

Hindenburg, which held short positions in undisclosed shares of Adani Group firms through its US-traded debt and offshore derivatives, on January 24 accused the group of “brazen stock manipulation and accounting fraud” and of inflating stock prices. Used by many offshore shell companies. ,

The group has denied the allegations, calling them “malicious”, “baseless” and a “planned attack on India”.

Sell: Since the Hindenburg report, the group’s 10 listed companies have posted losses of ₹12.06 lakh crore, almost equal to the market capitalization of Tata Consultancy Services (TCS), India’s second most valuable company.

Adani Total Gas Ltd – the group’s joint venture with France’s Total Energy for retailing CNG, lost 80.68% of market value, while Adani Green Energy, where the French firm has also invested, lost 74.62%. Has happened.

Adani Transmission’s market value has declined 74.21% since January 24, while its flagship Adani Enterprises is down close to 62%. Adani Power and Adani Wilmar as well as its cement units, media company NDTV and Adani Ports & SEZ have also lost market value.

The group’s founding chairman, 60-year-old Gautam Adani, a first-generation entrepreneur, has lost $80.6 billion in wealth, largely based on the valuation of his holdings in group companies.

He had a net worth of $120 billion before the Hindenburg Report, but is now ranked 30th on the World Billionaires Index with a net worth of around $40 billion.

Rival Mukesh Ambani, whom he overtook last year to become Asia’s richest and world’s third-richest businessman, is now ranked 10th with a net worth of $81.7 billion.

Enron moment? Former US Treasury Secretary and former Harvard University president Larry Summers recently compared the crisis at Adani Group to the accounting scandal that exposed US energy major Enron in 2001.

“We haven’t talked about it on the show, but there’s kind of a potential Enron moment in India,” he told Bloomberg’s Wall Street Week. “And I imagine with India emerging as the largest country in the world, and the (G20) meeting being held in India, there is going to be a lot of curiosity among all the attendees about how it will happen and if any What if there is a big systemic impact. Will happen to India”.

This was compared to the fall in Enron Corporation’s shares in 2001 following the revelation that the company inflated revenues and concealed trading losses.

Blame: Hindenburg claims that the Adani group uses a number of shell companies to inflate stock prices and flout shareholding rules that require at least 25% of listed companies to be held by the public. This indicated debt-driven growth and the group having “an advantage over depth”.

On 27 January, Adani published a 413-page response calling the Hindenburgs “the Madoffs of Manhattan”, in reference to Ponzi schemer Bernard Madoff.

Central to the Hindenburg allegations is the question of whether Adani executives or family members had influence over entities that held Adani company shares.

A Mauritius-incorporated company called Opal Investments Private Limited, which holds a 4.69% stake in Adani Power, was reportedly incorporated by TrustLink International Limited – a financial-services company that has ties to the Adani family.

One of TrustLink’s directors sits on the board of Opel. In its response dated January 27, Adani Group had said that it has no control over the shares bought by Opel and other independent shareholders, nor their source of funds.

The opposition Congress party has used the Hindenburg report to brand the Adani group as an oligarchy backed by the Modi government. The government as well as the ruling party BJP have denied all the allegations.

Brother Connection: The Hindenburg report has focused on the role played by Gautam Adani’s elder brother Vinod, 74, in the management of offshore entities. Vinod, who is said to work out of Dubai and is described as a Cypriot national, does not hold any managerial position in any of the listed Adani group companies, but according to Hindenburg, he is based in Mauritius, Cyprus And many manage a vast labyrinth of entities in the Caribbean. Islands that “regularly and covertly transact with Adani.” In response, Adani Group has stated that Vinod Adani does not hold any managerial position in any listed entities or their subsidiaries and has no role in their day-to-day affairs.

Nevertheless, Vinod Adani is said to have played the role of key negotiator for the Adani Group when it is raising funds from international markets. He and his wife Ranjanben were the beneficial owners of companies that bought shares in the open market after Adani Group’s $10.5 billion acquisition of cement makers Ambuja Cements Ltd and ACC Ltd.

FPO: The Hindenburg report came just as Adani Enterprises launched a ₹20,000 crore follow-on share sale, the second largest in India. Originally, the shares were offered at a discount to market value, but the report caused a deep selloff, with shares falling below the offering price.

While foreign investors like Abu Dhabi-based International Holding Company PJSC and domestic giant Life Insurance Corporation (LIC) subscribed to the shares, the FPO managed to close with full subscription but the company canceled the share sale and returned the money. This was probably to avoid deep losses to investors like LIC.

Withdrawal Strategy: Adani Group is chalking out a turnaround strategy focused on addressing debt investor concerns, consolidating operations and fighting the allegations with the help of top-level US crisis communication and legal teams.

It has canceled the purchase of a ₹7,000-crore coal plant as well as plans to bid for a stake in power trader PTC to save on expenses and pay off some debt.

It has brought in Keckest CNC as a global communications consultant and has engaged the American law firm Wachtel, Lipton, Rosen & Katz to fight against Hindenburg’s allegations.

The group has repaid $1.11 billion for issuance of pledged shares in Adani Ports and Special Economic Zone Limited, Adani Green Energy Limited and Adani Transmission Limited. It will prepay a $500 million bridge loan that was taken for the purchase of Holcim Ltd. Cement’s assets.

Adani Ports has repaid Rs 1,500 crore to SBIO MF and Aditya Birla Sun Life Mutual Fund and will pay Rs 1,000 crore in commercial papers in March.

The group had a gross debt of ₹2.26 lakh crore as of September 30, according to a stock exchange filing. Total cash and cash equivalents stood at ₹31,646 crore. It faces a repayment obligation of Rs 17,166 crore between January 2023 and March 2024.

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