Asia’s former richest man lost nearly $50 billion in one week

NEW DELHI: On Wednesday, Indian businessman Gautam Adani was stripped of the title of the richest man in Asia. As of early January, he was not only the richest person in Asia, but the third richest person in the world and just a few billion shy of Elon Musk. But over the past week, Adani has slipped several places on the list of the world’s richest people, which is maintained. Forbes: and Bloomberg. In less than 10 days, his personal fortune plummeted by nearly $50 billion, while his companies had a market value of nearly $100 billion.

Reason? He has been accused of pulling off “the biggest scam in corporate history” by one of the US-based short sellers, a research firm betting against Adani’s share price.

On January 24, Hindenburg Research released a more than 100-page report alleging that the Adani conglomerate “engaged in a scheme of gross stock manipulation and accounting fraud over decades.”

Adani Group calls the claims “nothing but lies”.

Adani Group shares fell further on Wednesday after Bloomberg reported that Swiss investment banking firm Credit Suisse had stopped accepting the Indian conglomerate’s bonds as collateral. The conglomerate also canceled a $2.5 billion stock sale on the same day, a move that further raised investor eyebrows.

Hindenburg claims to have evidence of “accounting fraud, stock manipulation and money laundering at Adani”. It raised concerns about the level of debt among group companies and alleged that the conglomerate illegally funneled money through tax havens such as Mauritius. The report notes that some of the group’s top executives are members of the Adani family, creating an environment conducive to opaque financing decisions.

The claim that Adani’s shares are overvalued did not come as a surprise to Sonam Srivastava, founder of Indian investment consultancy Wright Research. But “the detailed allegations of fraud and market manipulation are pretty damning,” he says.

“It is abundantly clear that Adani has had very little auditory scrutiny, almost no analyst coverage, and no steps have been taken by the regulator to investigate their business processes or pricing actions.”

Amol Agrawal, who teaches economics at the University of Ahmedabad in India’s Gujarat state, said the Adani episode was “a big blow to the group’s image, and reputation is very important here.”

Relations with Indian leadership

Adani’s businesses span everything from airports and ports to coal and renewable energy and, more recently, media. The 60-year-old tycoon’s meteoric rise over the past few years, about $100 billion of his previously estimated $120 billion net worth (before the scandal erupted) in the last three years, has coincided with the Indian’s election and rise. Prime Minister Narendra Modi.

Both hail from the western Indian state of Gujarat, had humble beginnings and have been friends for many years, observers say. In 2014, then Prime Minister-elect Modi traveled to New Delhi on an Adani flight for his inauguration.

The Hindenburg Report renewed ties between the two men. “Adani has achieved this huge feat with the help of cottage industry figures from the government and international companies that facilitate this activity. These issues of corruption permeate many layers of government,” the report said.

“There is no smoke without fire.”

Hindenburg, however, does not disclose the alleged fraud merely as a public service. It holds short positions in the Adani Group, meaning Hindenburg stands to gain financially if Adani shares fall. The short-seller has experience blowing the whistle on corporate fraud around the world, from the United States to China, and profiting from his revelations. For example, in 2022 it accused Trevor Milton, founder and CEO of electric car company Nicola, of making false statements to boost the company’s stock price. A short time later, Milton was found guilty in US federal court.

“Short sellers have their own games to play, just like long buyers,” Agrawal says. “But there is no smoke without fire.”

Hindenburg was founded in 2017 by Nathan Anderson, a former hedge fund manager who is now among a small group of activist short sellers on Wall Street, traders who make money by shorting or betting on large companies. According to 2021 New York Times Anderson’s Profile He has turned his passion for “deception-finding” into a career.

This is not the first time Adani has been accused of fraud.

In 2021, Indian lawmaker Mahua Moitra, who belongs to an opposition party and was a former investment banker, wrote to the Securities and Exchange Board of India calling for an investigation into Adan’s alleged use of offshore companies. “Regulators never took a stand and the charges died down,” said Srivastava, founder of an investment advisory firm.

The Adani Group has been the subject of numerous investigations by government agencies, but Hindenburg says most of them have stalled or been stonewalled.

“Calculated attack on India”.

Agrawal, of the University of Ahmedabad, also wonders why it took a US-based research firm to raise such serious questions about the Adani group. “There are so many stock market analysts [in India]”Why didn’t they see what these guys see?” he asks.

Most market analysis today, he said, is “buy, buy, buy,” and that points to a broader problem. “The stock market and the entire financialization of the world economy has moved in a direction where the only thing you want to do is make sure that the stock markets and the companies that trade in them keep going up. Because if something happens, there is a whole. decline”.

On January 29, the Adani Group issued a more than 400-page rebuttal of Hindenburg’s findings, which it called “a malicious combination of selective misinformation and obfuscating facts.” The statement also cited Hindenburg’s conflict of interest as a short seller, alleging the company had ulterior motives.

“This is not just an unprovoked attack on any particular company, but a calculated attack on India, on the independence, integrity and quality of Indian institutions, and on India’s growth history and ambitions,” the statement said. The Adani Group said it was also considering suing Hindenburg.

Hindenburg says he welcomes any legal action and that “fraud cannot be clouded by nationalism”.

“We believe that India is a vibrant democracy and emerging superpower with an exciting future. We also believe that the future of India is being held back by the Adani group, which has flown under the Indian flag while systematically looting the nation,” Hindenburg replied.

Indian newspaper on Tuesday Mint reports that “Adani Group” plans to conduct an independent audit of eight of its listed companies. India’s securities regulator is also increasing scrutiny of Adani’s deals, Reuters reports.

The fallout from Hindenburg’s report comes amid Adani’s $2.5 billion follow-on initial public offering, or secondary share sale, which was met with a muted response from retail investors but backed by investors such as Abu Dhabi International Holding Co. full subscription, but the conglomerate withdrew it the next day, citing market volatility. “It would not be morally right to continue,” Adani told investors on Thursday.

Agrawal says whether Adani’s allegations will have a wider impact on India’s reputation remains to be seen.

“If this is a one-off incident and it is cleared quickly, then fine, it will not tarnish India’s image,” he says. “But if these governance issues and so on are not limited to just one group, and if it’s a larger phenomenon, then there will be some reaction in terms of: [investors] can withdraw funds.”