Adani Group engaged in stock manipulation, accounting fraud over decades: Hindenburg report

Investment research firm with a focus on activist short-selling, Hindenburg Research, has published a damning report on the Adani Group. The report is based on their findings of a two-year investigation. It said that the conglomerate has “engaged in brazen stock manipulation and accounting fraud schemes over the course of decades". It said that they spoke to dozens of individuals, including former and senior executives of the Adani Group, reviewed thousands of documents and conducted diligence site visits in almost half a dozen countries. 

“We have uncovered evidence of brazen accounting fraud, stock manipulation and money laundering at Adani, taking place over the course of decades. Adani has pulled off this gargantuan feat with the help of enablers in government and a cottage industry of international companies that facilitate these activities,” said the Hindenburg report.

Adani Group CFO Jugeshinder Singh, in response to the report, said that Hindenburg made no attempts to contact them or “verify the factual matrix”. It said that the report was an attempt to discredit the conglomerate ahead of its FPO.“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. The timing of the report’s publication clearly betrays a brazen, mala fide intention to undermine the Adani Group’s reputation with the principal objective of damaging the upcoming Follow-on Public Offering from Adani Enterprises, the biggest FPO ever in India.”

The company said that its investors were not “influenced by one-sided, motivated and unsubstantiated reports with vested interests”. It said that it has always been in compliance with all laws and maintains the highest standards of corporate governance. 

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As per the Hindenburg report, the stock price of the seven listed companies spiked an average 819 per cent in a period of three years. It said that these 7 companies have 85 per cent downsided “purely on a fundamental basis owing to sky-high valuations”. 

Key Adani companies have taken on substantial debt, including “pledging shares of their inflated stock for loans”, the report said. Five of the seven listed companies have ‘current ratios’ below 1, which indicates near-term liquidity pressure, it added. 

The Hindenburg report also said that the group was the focus of four major government fraud investigations over allegations of money laundering, theft of taxpayer funds and corruption, totalling an estimated $17 billion. Adani family members also, it said, operate offshore shell entities in tax havens like Mauritius, UAE, and the Caribbean Islands. They have generated fraud import/export documents to “generate fake or illegitimate turnover and to siphon money from the listed companies”.

The Directorate of Revenue Intelligence (DRI) accused Gautam Adani’s younger brother Rajesh Adani of playing a key role in the diamond trading import/export scheme of 2004-05 that used offshore shell entities to generate artificial turnover, the report points out. Rajesh Adani was arrested twice -- in 1999 and 2010 -- over separate allegations of forgery and tax fraud before being promoted as the Managing Director of Adani Group. 

Gautam Adani’s brother-in-law Samir Vora was also accused by the DRI of being a ringleader in the same scam and of making false statements to regulators, it further states. He was eventually promoted as Executive Director of the Adani Australia division, the report said. 

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The Hindenburg report also put its lens on Gautam Adani’s brother, Vinod Adani, often called an ‘elusive figure’. The report stated that Vinod Adani has been “regularly” found at the centre of government investigations. He is alleged to manage a network of offshore entities that are used to facilitate fraud. 

The report said that it found Vinod Adani to manage a vast labyrinth of offshore shell entities. They identified 38 Mauritius shell entities controlled by him or close associates. He also controls entities in Cyprus, UAE, Singapore, and several Caribbean Islands. Many of the Vinod Adani-associated entities have no signs of operations, employees, addresses, phone numbers or meaningful online presence. 

However, these companies have collectively moved billions of dollars into Adani’s publicly listed and private entities, the report alleges. There also have been efforts to “mask the nature of some of the shell entities”, said the report. These companies, it said, serve several functions, including stock parking and manipulation, money laundering through the private companies into the listed ones to “maintain the appearance of financial health and solvency”.

The report said that unlike Indian rules where listed companies need to have at least 25 per cent held by non-promoters, four Adani listed companies are on the brink of delisting due to high promoter ownership. Many of the largest “public” holders of Adani stock are offshore shells and funds tied to the Adani Group, it states. 

Many of the “public” funds exhibit irregularities such as being Mauritius or offshore-based entities, with beneficial ownership concealed via nominee directors, little or no diversification, it further alleges. 

A former trader for Elara, an offshore fund with $3 billion in concentrated holdings of Adani shares told Hindenburg that it was obvious that Adani controlled the shares and that the funds were intentionally structured to conceal ultimate beneficial ownership. 

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“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,” stated the report. 

It also cited the 2007 SEBI ruling that stated that the Adani promoters aided and abetted Ketan Parekh, the most notorious stock market manipulator in India, in manipulating the scrip of Adani. The companies were penalised with bans, which were later reduced to fines. The investigation showed that 14 Adani private entities transferred shares to entities controlled by Parekh who then engaged in market manipulation. 

The Hindenburg report stated that they found that little has changed and that all the “previous clients are still loyal to Ketan and are still working with Ketan”.

They also found offshore shells allegedly sending money to public Adani companies through onshore private Adani companies. The funds were used to engineer Adani’s accounting, cushioning its capital balances to make these companies appear more creditworthy, it claimed. 

“This offshore shell network also seems to be used for earnings manipulation. For example, we detail a series of transactions where assets were transferred from a subsidiary of listed Adani Enterprises to a private Singaporean entity controlled by Vinod Adani, without disclosure of the related party nature of these deals. Once on the books of the private entity, the assets were almost immediately impaired, likely helping the public entity avoid a material write-down and negative impact to net income,” stated the report. 

Adani Enterprises has had five chief financial officers in 8 years, which indicate accounting issues, it said. 

The report also questioned the credibility of Adani Enterprises’ independent auditor Shah Dhadharia which apparently has four partners and 11 employees, and "does not appear to be capable of undertaking such a gargantuan task" – Adani’s listed entities collectively have 578 subsidiaries and thousands of separate party-related transactions. The audit partners were as young as 24 and 23 years old and fresh out of school, it pointed out.

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