On 24 January, disclosing it had taken a short position in the Adani family’s various listed exposures on Wall Street, US research firm Hindenburg dropped a bombshell on Adani Group, the sprawling family conglomerate of multi-billionaire Guatam Adami, whose interests encompass coal mines – including Carmichael in Queensland’s Galilee Basin – coal-fired power stations, coal-to-plastics facilities, LNG import facilities, methane infrastructure, at least ten strategically important Indian ports and six airports.
Hindenburg’s 100 page report alleged longstanding “brazen accounting fraud, stock manipulation and money laundering,” also pointing to the conglomerate’s substantial burden of debt, both in 10 Bombay Stock Exchange-listed subsidiaries, and across its network of hundreds of tax haven and private family entities.
Adani’s 400 page refutation condemned Hindenburg’s claims as baseless, and the short seller’s intervention as a “calculated securities fraud under applicable law”.
The Adani family wrapped itself in the Indian flag, decrying Hindenburg’s “attack on India, the independence, integrity and quality of Indian institutions and the growth story and ambition of India,” and threatening legal action.
Despite Adani’s emphatic rebuttal, the behemoth has been bleeding. A brutal sell off of Adani Group shares has seen it shed over $US100 billion in collective market capitalisation, and Adani’s personal wealth plummet.
A $US2.4 billion share offer, the largest follow-on public offering in India’s history, planned before the hit and designed to fuel even more expansion, was 92% subscribed – including by a number of the entities central to the alleged market rigging scam detailed by Hindenburg. Adani subsequently abandoned the raising as the share price halved last week.
The Hindenburg allegations are yet to be proven, and we are not in a position to adjudicate.
However, in more than three decades of global financial market analysis, we have never seen an almost entirely domestic focused conglomerate (98% of Adani’s assets are in India) with such extensive foreign tax haven networks, well beyond what is remotely the norm in financing and tax structures.
One example is shadowy private UK-Mauritius-Bermuda-India-UAE-based asset management firm Elara Capital, which boasted UK cabinet minister Lord Johnson as a director until his resignation last week. It has no disclosed association with the Adani promoters.
The FT reports the Adani group accounted for 99% of the $US3 billion Elara India Opportunities Fund, an almost globally unique concentration of asset management exposure. Elara is licensed as a Foreign Portfolio Investor (FPI) in India, meaning much less regulatory oversight than applies to Indian-based financial institutions.
This gives rise to Hindenburg’s suggestion that offshore entities are central to the alleged stock ramping, insider trading and manipulation, structured to circumvent India’s rigorous domestic financial laws.
The AFR reported in 2021 that four funds in the tax haven Mauritius have some 90% of their collective $US6.9 billion under management in the Adani empire, making them the largest ‘external’ investors globally. These funds – Elara India Opportunities, Cresta, Albula Investment and APMS Investment – are reported to have previously held significant stakes in Winsome Diamonds and Jewellery, Sterling Biotech, Ruchi Soya Industries and Karuturi Global. Two of these companies’ founders fled India and have since been probed for money laundering and round-tripping (allegations strikingly similar to Hindenburg’s), another went bankrupt, and a fourth liquidated.
Hindenburg’s analysis is the basis for renewed calls on financial regulator the Securities and Exchange Board of India (SEBI) to release the findings of its investigations into Adani from two years ago.
There have been similar probes going back a decade by India’s Directorate of Revenue Intelligence (DRI), including a long-stalled DRI investigation into a multi-billion dollar over-invoicing scam allegedly involving Vinod Adani in Mauritius and others.
Given Adani’s continued protestations of innocence, it should stop impeding and instead encourage completion of these inquiries. Its offshore network must be examined rigorously by Indian regulators with all conflicted parties recused.
And until the US financial regulator, the Securities and Exchange Commission (SEC), gets involved and likewise applies rigorous scrutiny to the conglomerate’s affairs, Wall Street will likely remain entirely closed to access for the Adani Group.
This is problematic for Adani. The Group’s relatively low free operating cashflow makes it exceptionally hard for the Adani family to procure sufficient finance to cover existing needs, as well as debt retirements, reported to be $US2 billion in 2023 and $US3 billion in 2024.
We saw this week that even France’s TotalEnergies has put on hold their future investments in Adani subsidiaries until further notice.
With self-preservation the priority, the group will likely need to put all but its most secure expansion projects on hold and look to inject liquidity by securing a strategic buyer for some of its crown jewels.
In Australia, regulator ASIC has been asleep at the wheel over alleged corporate wrongdoing in the Adani Group for a decade and is unlikely to get involved.
Since Queensland Premier Palaszczuk vetoed Senator Matt Canavan’s proposed $1bn NAIF loan to the Adani Group in 2017, Australia has avoided material exposure.
The Adani Group has long been closed to any Australian financial institution of substance, since the grassroots-driven decade-long StopAdani movement effectively removed the company’s social licence and saw original plans for Carmichael coal delayed nearly a decade and downgraded from 60 million to six million tonnes per annum.
The Adani family has had to entirely self-fund the Australian business via an extensive assortment of tax haven vehicles and Adani Enterprises. Now it is nearly operational, the Carmichael HALE (high ash, low energy) mine and port are profitable, beyond the servicing needs of its extensive inter-company debt profile.
There are potentially broader implications of the saga, given the United States’ courting of India as a counterweight to China within the Quad partnership, which also includes Japan and Australia.
US tensions with China have escalated, and the relationship is volatile. SEC scrutiny of the Indian giant with strong, deep and personal links to the Modi government, and the intertwining of the fortunes of Gautam Adani and India, adds more complexity. Meanwhile, reverberations intensify: last week saw the extraordinary adjournment of India’s parliament over the Adani rout.
These are interesting times for the previously teflon-coated tycoon and his hydra-like empire. The world is watching.
Tim Buckley, director of independent think tank Climate Energy Finance, has been studying the Adani Group for over a decade.
