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Indian Tycoon Hit by Allegations of Fraud Faces Huge Losses


This grab from video released by Adani Enterprises Ltd. on Feb.2, 2023 shows Indian billionaire Gautam Adani addressing investors from an unknown location.
This grab from video released by Adani Enterprises Ltd. on Feb.2, 2023 shows Indian billionaire Gautam Adani addressing investors from an unknown location.

Indian business tycoon Gautam Adani is in the eye of a storm after a dramatic crash in the stocks of his companies.

Adani’s businesses have lost more than $100 billion after a U.S. investment firm, Hindenburg Research, alleged that the companies engaged in stock market manipulation and fraud. The Adani Group has called the allegations “nothing but a lie.”

The rout faced by the Adani conglomerate, which spans such key areas as ports, power generation, airports, mining, and renewable power, has raised fears of a potential loss of investor confidence in India’s growing economy. It has also triggered a political storm, with opposition parties demanding a probe into the accusations of malpractice against a business figure perceived to have close ties to Prime Minister Narendra Modi.

The spectacular rise of the Adani empire over the last decade has catapulted Gautam Adani into the realm of the world’s wealthiest people. He was ranked as the world’s third richest, and Asia’s richest man by Forbes, behind Bernard Arnault and Elon Musk until late January.

That ranking has tumbled since seven listed companies of the Adani group lost nearly half their market capitalization after Hindenburg raised doubts over the business practices of the conglomerate. In a report, it accused the group of artificially boosting share prices by funneling money into stocks through offshore tax havens. The report said the shares were overvalued and their prices had soared more than 800% in the past three years.

Hindenburg is a small investment firm known as a short seller on Wall Street. The firm looks for corporate wrongdoing and makes money if stock prices of the company fall.

Vehicles move past a signage near the entrance of Adani Corporate House in Ahmedabad, India, Jan. 27, 2023.
Vehicles move past a signage near the entrance of Adani Corporate House in Ahmedabad, India, Jan. 27, 2023.

Hindenburg said that the "brazen stock manipulation” and accounting fraud by Adani Group was "the largest con in corporate history." It also said that “substantial debt” puts the group on a precarious financial footing.

In a 413-page response, the Adani Group called the report baseless and a “malicious combination of selective misinformation” and “stale, baseless and discredited allegations.” It said the charges were driven by “an ulterior motive” to allow the U.S. firm to make financial gains.

In a video message to investors Thursday, Adani said that the fundamentals of his group are "strong" and that its record on paying back debt was "impeccable.” The Adani Group called the report an attack on the "growth story and ambition of India."

Hindenburg countered by saying, “India’s future is being held back by the Adani Group, which has draped itself in the Indian flag while systematically looting the nation.”

The controversy has turned a spotlight on the dizzying rise of the 60-year-old businessman, a college dropout from a middle-class family, who began as a commodities trader before expanding into infrastructure in the 1990s when he built a port in Gujarat state and made a foray into areas such as coal mining. Then came power plants, airports, roads and defense equipment, areas he said were in step with the country’s need for infrastructure. The group became one of the country’s top three conglomerates.

He has also made investments overseas -- on Tuesday, even as the controversy raged, Adani stood with Israel’s Prime Minister Benjamin Netanyahu, as he took control of Israel’s Haifa port, acquired for $1.2 billion. In 2011 he bought a large coal mining operation in Australia. Other investments are lined up in Sri Lanka.

Adani hails from Gujarat state, which Modi headed as chief minister before arriving on the national stage in 2014. Critics point out that his dramatic expansion has coincided with Modi’s rule.

People walk past an electronic signage displaying news on federal budget at the Bombay Stock Exchange (BSE) building in Mumbai, India, Feb. 1, 2023
People walk past an electronic signage displaying news on federal budget at the Bombay Stock Exchange (BSE) building in Mumbai, India, Feb. 1, 2023

“From the time Modi was the chief minister of Gujarat, there were close ties with Adani at the personal level,” said Nilanjan Mukhopadhyay, a political analyst who has written a book on Modi. “However, I did not really look into their association at a business level.”

Adani has denied claims of any preferential treatment by Modi’s government. "These allegations are baseless," Adani told India Today television saying that their shared origins made him an "easy target" for such claims. "The fact of the matter is that my professional success is not because of any individual leader."

For the time being, the group faces a crisis of confidence despite a marginal rally in its companies’ stocks on Friday. Adani has scrapped a $2.5 billion share offering that opened after the release of the Hindenburg report, saying he was doing it to insulate investors from potential losses, but that it would not affect his business. The share issue had been seen as a key sign of investor confidence. Although it found support from institutional investors and wealthy Indians, small retail investors had largely shunned it.

Indian Finance Minister Nirmala Sitharaman has said that she did not expect the controversy around Adani's business empire to affect investor confidence in India.

India remains a "very well-regulated financial market," she told broadcaster News18 on Friday.

"One instance, however much talked about globally it may be, I would think is not going to be indicative of how well Indian financial markets are governed," Sitharaman said. “I think the investor confidence which existed before shall continue even now."

However, calls for a probe are growing amid questions about whether financial regulators had done enough scrutiny of the group. “The allegations made by Hindenburg need an enquiry at the level of the Supreme Court because the charges are serious,” economist Prasenjit Bose said.

The controversy has also turned into a political flashpoint. Parliament was adjourned Thursday and Friday as opposition lawmakers demanded an inquiry either by a joint parliamentary committee or one monitored by the Supreme Court into the allegations and have expressed concerns about exposure that Indian financial institutions have to the Adani Group.

Parliamentary Affairs Minister Pralhad Joshi, a member of Prime Minister Narendra Modi’s Bharatiya Janata Party, told reporters outside parliament on Friday that “we [the government] have no connection” with the Adani controversy.

Political analyst Mukhopadhyay said, “The Adani meltdown will only have a political impact if there is a negative fallout on the wider stock markets and Indian public financial institutions. Otherwise, it will blow over.”

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