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Hindenburg Research, a tiny New York firm that specialises in short selling, brought out a scathing report that has led to his group shedding more than USD 50 billion in market value in just two trading sessions and Adani himself losing in excess of USD 20 billion, or about one-fifth of his total fortune.
The 60-year-old tycoon has now slipped behind Bill Gates and Warren Buffett to be the seventh-richest person in the world from the pre-Hindenburg position of being the third richest. More than his personal status, at stake is the reputation of an empire the first-generation entrepreneur built over three-and-half decades.
The immediate task is to see a Rs 20,000 crore follow-on share sale — the second largest in India — at his conglomerate’s flagship firm sail through. Adani Enterprises Ltd’s FPO found investors for just 1 per cent of the shares on offer on the opening day on Friday when the company’s share price fell below the offer price because of the damning allegations in the Hindenburg report.
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EARLY LIFE
Born in a Jain family in Ahmedabad, Gujarat, Adani dropped out of college and moved to Mumbai as a teenager, working for a while as a diamond sorter in the gem trade. He returned to Gujarat in 1981 to help his elder brother Mahasukhbhai run a small-scale PVC film factory the family had acquired at Ahmedabad.
In 1988, he set up a commodities trading venture under Adani Exports and listed it on the bourses in 1994. The firm is now called Adani Enterprises.
KIDNAPPED FOR RANSOM
By the mid-1990s, his business successes started attracting attention, including the unwelcome kind. On January 1, 1998, Adani and his associate Shantilal Patel were abducted at gunpoint after they left Karnavati Club in Ahmedabad in a car.
They were held allegedly by gangsters Fazlu Rehman and Bhogilal Darji alias Mama (who were later acquitted for lack of evidence) for a reported USD 1.5-2 million ransom. Both were let off a day later but it is not known if the ransom was paid.
SURVIVING 2008 MUMBAI TERROR ATTACK
On November 26, 2008, he was dining at Mumbai’s iconic Taj Hotel with Dubai Port CEO Mohammed Sharaf. As he was about to exit after paying bills, a few associates called for a second round of meeting over a cup of coffee. That’s when terrorists attacked, which killed 160.
Adani, who along with other guests was escorted first to the hotel kitchen and then to the basement by the staff, later said he would have been caught in the attack had he made it to the exit after paying bills for the dinner.
Adani spent the night in the basement and then in a hall before being rescued by commandos the next morning.
After landing at the Ahmedabad airport in his private aircraft on November 27, Adani had said, ”I saw death at a distance of just 15 feet.”
BUSINESS EMPIRE
Starting off as a commodities trader in 1988, Adani started operating a port at Mundra on Gujarat coast a decade later. He grew the business to become India’s largest private-second port operator. There was no looking back after that. He rapidly expanded his business empire into power generation, mining, edible oil, gas distribution and renewable energy.
This came alongside the meteoric rise of Narendra Modi as the chief minister of Gujarat.Adani’s business interests expanded into airports, cement and more recently media. Adani has repeatedly denied getting any favourable treatment from Modi when he was chief minister or now as Prime Minister. He used Adani Enterprises as an incubator of new business before spinning them off into separate listed companies.
The stocks of his seven listed companies surged — some cases up to 1,500 per cent in the last three years amid aggressive expansion. He overtook Mukesh Ambani of Reliance as India’s richest and eventually world’s third-richest person with a net worth of USD 127 billion last year. He trailed only Bernard Arnault and Elon Musk.
In little over a decade, it has become India’s largest private sector power producer and will be the world’s largest renewable company by 2030. It is the largest airport operator in India with 25 per cent of passenger traffic and 40 per cent of air cargo.
It is the largest ports and logistics company in India with 30 per cent national market share. It is India’s largest integrated energy player, spanning electricity generation, transmission, and distribution, LNG and LPG terminals, city gas and piped gas distribution.
Last year, his group became the country’s second largest cement manufacturer and the highest valued FMCG company following the IPO of Adani Wilmar. It is diversifying rapidly into other sectors including clean energy, hydrogen, aircraft maintenance, manufacturing, telecom, data centres and logistics.
In recent years, the USD 220 billion conglomerate has attracted foreign investors such as Total Energies of France for its renewable energy, city gas and hydrogen projects.
CONTROVERSIES
In Australia, Adani group is still dealing with negative publicity for its Carmichael coal mine project in Queensland on concerns of carbon emissions and damage to the Great Barrier Reef.
It won approval in 2019 after a decade-long struggle with regulators and environmentalists. More recently, its USD 900-million container transshipment project at Vizhinjam port in Kerala faced protests from local fishermen on concerns of the coastal erosion undermining their livelihood. The four-month-long protests were called off last month.
REPUTATION CHALLENGE
Activist short seller Hindenburg Research, the firm which caught global attention with takedowns of electric-vehicle makers Nikola and Lordstown Motors, alleged in a report on Wednesday that its two-year investigation found that the Adani Group ”engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades”.
Activist short sellers identify what they consider as an overvalued stock. They borrow securities in the company and sell them at the current market price. The plan is to buy back these securities at a lower price in the future, once the stock price has dropped following damming disclosures.
Hindenburg called out the conglomerate’s ”substantial debt”, which includes pledging shares for loans; that Adani’s brother Vinod ”manages a vast labyrinth of offshore shell entities” that move billions into group companies without required disclosure; and that its auditor ”hardly seems capable of complex audit work”.
Adani responded by threatening to sue Hindenburg for its ”reckless” attempt to sabotage the mega share sale at Adani Enterprises.
Hindenburg has, however, stood by its report saying the Indian conglomerate has not answered any of the 88 ”straightforward” questions it had asked in the report and would want them to file a suit in the US where it will demand a long list of documents in a legal discovery process.
”The maliciously mischievous, unresearched report published by Hindenburg Research on January 24, 2023 has adversely affected the Adani Group, our shareholders and investors. The volatility in Indian stock markets created by the report is of great concern and has led to unwanted anguish for Indian citizens,” Adani Group’s legal head Jatin Jalundhwala had said in a statement.
The report and its unsubstantiated contents were designed to have a deleterious effect on the share values of Adani Group companies as Hindenburg Research, by their own admission, is positioned to benefit from a slide in Adani shares, he said.
”We are deeply disturbed by this intentional and reckless attempt by a foreign entity to mislead the investor community and the general public, undermine the goodwill and reputation of the Adani Group and its leaders, and sabotage the FPO (Follow-on Public Offering) from Adani Enterprises,” he said. ”We are evaluating the relevant provisions under US and Indian laws for remedial and punitive action against Hindenburg Research.”
Hindenburg responded saying, ”If Adani is serious, it should also file suit in the US where we operate. We have a long list of documents we would demand in a legal discovery process.”
More than the war of words, the task for Adani is clearly cut out — quickly restore investor confidence in his group by addressing issues ranging from leverage to governance practices.