Editor’s note (January 27, 2023): Adani Enterprises shares have fallen more than 15 percent since the report was published on January 26.
nonot a day In India, there is no news of the exploits of its richest tycoon, Gautam Adani. In September, his fortune was estimated at $140 billion, double the year before, thanks in large part to huge gains at the seven public companies he controls.This has encouraged new acquisitions, including an Israeli port, an Indian port television– News Network and the country’s second largest cement producer.
The latest Adani news isn’t all that ecstatic. On January 24, Hindenburg Research, an American short-selling agency, released a report entitled “Adani Group: How the World’s Third Richest Man Implemented the Largest Fraud in Corporate History”. It claims that Adani’s share price has been artificially inflated. Adani Group’s chief financial officer, Jugeshinder Singh, called the report a “malicious combination of selective misinformation and stale, baseless and uncredible allegations” aimed at undermining an upcoming secondary offering by the group’s flagship Adani Enterprises. He also said that Hindenburg “made no attempt to contact us or check the fact matrix” when he published his report.
Hindenburg is known for spotting problems in sexy startups. These included electric van company Nikola, whose founder was later convicted of fraud, and Lordstown Motors, an automaker that inflated orders. In chasing Adani, Hindenburg chose to fight a corporate giant with a track record of rapid growth and ambitious infrastructure investments. Short sellers point out that Adani Enterprises, which bills itself as an “incubator focused on building diversified new businesses,” trades at 500 times earnings. Renewable energy company Adani Green Energy trades at a price-to-earnings ratio of more than 800.By contrast, at the peak of the pandemic tech boom in late 2021, US tech stocks’ price-to-earnings ratios Nasdaq The index is below 30. Based on valuation alone, Hindenburg believes the price of Adani’s business could drop by 85%.
High valuations are not the end of the story, short sellers claim. It describes a complex edifice: seven listed Indian companies sit atop 578 subsidiaries. In 2022, these companies are said to have conducted 6,025 related party transactions. It was the visible part of a much more complex system of companies, many of them located in foreign jurisdictions, that Hindenburg argued had “no visible signs of operation.” The key, the report said, was to manipulate the share prices of listed companies and move funds onto balance sheets to “maintain a semblance of financial health and solvency” amid high debt and thin liquid assets. Mr Singh said such allegations had been “tested and dismissed by the Supreme Court of India”.
Despite this hard-line denial, investors are nervous. The total market capitalization of Adani listed companies fell by $11 billion, or 5%. Some investors are concerned about the group’s structure, acquisition appetite and debt. The fact that the waterfall is not steep is a testament to its incredible ability to withstand storms. ■
To stay on top of the most important news in business and technology, subscribe to The Bottom Line, our weekly newsletter for subscribers.