The Adani Group, one of India’s largest and most diversified conglomerates, has been on a roller coaster ride in the past few months. The group’s shares soared to record highs in January 2023, making its founder Gautam Adani the third richest person in the world. However, the group’s fortunes took a sharp turn after a scathing report by a US-based short-seller firm Hindenburg Research accused it of stock manipulation and accounting fraud. The report triggered a massive sell-off in the group’s stocks, wiping out more than $100 billion in market value1
But what exactly did Hindenburg allege? And how did the Adani Group respond? And most importantly, is the group back in the game after a Supreme Court-appointed committee cleared it of any regulatory failure?
The Hindenburg Report: A Bombshell or a Dud?
Hindenburg Research is a forensic financial research firm that specializes in activist short-selling, which means it bets against the stocks of companies that it believes are overvalued or fraudulent. The firm has a track record of exposing corporate wrongdoings and scandals, such as Nikola, Clover Health, and Lordstown Motors2
On January 24, 2023, Hindenburg released a 66-page report titled “Adani: The House of Cards”, which claimed that the Adani Group was “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades”. The report alleged that the group had used offshore shell entities in tax havens to facilitate corruption, money laundering, and taxpayer theft while siphoning off money from its listed companies. The report also raised questions about the group’s debt levels, financial controls, auditor quality, and corporate governance3
The report sent shockwaves across the Indian stock market, as investors panicked and dumped the group’s shares. The group’s six listed companies - Adani Enterprises, Adani Ports & SEZ, Adani Green Energy, Adani Power, Adani Transmission, and Adani Total Gas - lost more than 40% of their value in a week. The group’s bonds also fell sharply in the international market1
The Adani Group’s Response: A Denial or a Defence?
The Adani Group swiftly dismissed the Hindenburg report as “baseless” and “unsubstantiated”. It said that the report was “motivated by vested interests” and “designed to mislead investors”. It also said that it had complied with all applicable laws and regulations and that its financial statements were audited by reputed firms4
The group also received support from some of its global partners and investors, such as TotalEnergies, International Holding Company (IHC), and Qatar Investment Authority (QIA), who reaffirmed their confidence and commitment to the group’s businesses5
The group also took legal action against Hindenburg Research and its founder Nathan Anderson in Singapore, seeking damages for defamation and injunctive relief. The group claimed that Hindenburg had made false and malicious statements that harmed its reputation and goodwill.
The SC Committee Report: A Relief or a Validation?
In February 2023, the Supreme Court appointed a six-member expert committee headed by former SC judge A M Sapre to examine the regulatory framework and allegations leveled against the Adani Group by Hindenburg Research. The committee also included former SBI chairman O P Bhatt, former Bombay HC judge J P Devadhar, veteran banker K V Kamat, founder and non-executive chairman of Infosys Nandan Nilekani, and commercial law expert Somasekhar Sundaresan.
The committee submitted its report to the Supreme Court on May 19, 2023, which was made public on May 21, 2023. The report stated that there was no regulatory failure on the part of SEBI in relation to compliance with the regulatory stipulations governing minimum public shareholding (MPS) stipulation, related party transactions (RPTs), or price manipulation.
The committee said that SEBI had examined whether there had been any unusual trading pattern proximate to the release of the Hindenburg report and found suspicious trading on the part of six entities - four FPIs (not among the 12 FPIs suspected to be linked to Adani Group), one body corporate and one individual - who had built up short positions on Adani Group stocks prior to the Hindenburg report and earned substantial profits by squaring off their positions after the publication of the report. The committee said that a detailed investigation was being carried out by SEBI in respect of these entities.
The committee also said that it could not deny the evidence of short positions building up on Adani Group stocks ahead of the publication of allegations by US short-seller Hindenburg Research.
The Adani Group’s Recovery: A Fluke or a Trend?
Despite the Hindenburg report and the ensuing market turmoil, the Adani Group has shown remarkable resilience and recovery in its business performance and stock prices. The group’s six listed companies have regained most of their lost value since February 2023, with some of them hitting new highs. The group’s market capitalization has crossed $300 billion again, making it the second most valuable Indian conglomerate after Reliance Industries.
The group has also continued to expand its presence and portfolio across various sectors and geographies, such as renewable energy, airports, data centers, defense, logistics, and media. The group has won several contracts and tenders from both public and private entities, such as Indian Railways, Airports Authority of India, NTPC Limited, Amazon India, and Flipkart. The group has also announced several acquisitions and investments, such as SB Energy India from SoftBank Group, Mumbai International Airport Limited from GVK Group, Radhakishan Damani’s stake in India Cements Limited, and a stake in NDTV Limited.
The group has also maintained its focus on social responsibility and environmental sustainability, through its philanthropic arm Adani Foundation and its green initiatives such as a carbon neutrality pledge by 2050 and a $70 billion investment in clean energy over the next decade.
The group’s recovery has been attributed to various factors such as its strong fundamentals, diversified portfolio, visionary leadership, global partnerships, innovation capabilities, and customer loyalty.