Posted Jan 25, 2023, 3:12 PMUpdated Jan 25, 2023, 5:19 PM
It would, in the end, be the much less glorious story of a big joke and not that of the revenge of the old economy on “tech”. Short seller Hindenburg Research, known for demystifying the success story of so-called revolutionary truck manufacturer Nikola in 2020, revealed last night, following two years of investigation, the name of the latest alleged fraudster he has flushed out: Adani Group, a sprawling empire, present in energy, electricity production, ports, logistics and agribusiness, “strongly suspected of being the biggest corporate fraud in history”summarizes in a tweet the American research firm.
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“Today we are presenting evidence that the Indian conglomerate, worth 17.8 trillion rupees ($218 billion), has engaged in a brazen scheme of stock manipulation and accounting fraud over the past decades »which would explain, according to Hindenburg Research, the explosion in value, on the Stock Exchange, of the seven listed companies in the Adani galaxy (+819% on average over the last three years), outside of any economic and financial rationality, allowing its founder, the coal baron Gautam Adani, close to Prime Minister Narendra Modi, to be propelled to third place in Bloomberg’s world ranking of billionaires (with an estimated fortune of around 120 billion dollars, +100 billion in three years), behind the French Bernard Arnault (LVMH) and the American Elon Musk (Tesla).
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“Malicious Combination of Selective Disinformation”
Adani Group, which has already been the subject of four major government investigations relating to allegations of fraud, denies the investigation findings (the accounts have been scrutinized, “thousands” of documents were examined, former leaders were questioned, the sites “in nearly half a dozen countries” were visited), saying to themselves “shocked” of the publication of this report without Hindenburg Research “has made no attempt to [les] contact. The report is a malicious combination of selective disinformation” the same day that one of the listed entities, Adana Enterprises (coal mining and trading, electricity trading), a component of the Nifty 50, the flagship index of the Mumbai Stock Exchange which it helped to pull up last year bucking the global trend, was set to launch India’s biggest ever capital raising (FPO).
Hindenburg Research cripples the centralized organization of the company, the concentration of powers, which promotes its opacity and offers, by nature, fertile ground for abuses of all kinds. “The top management positions and eight of the twenty-two key executives are held by members of the Adani family, a dynamic that puts control of group finances and key decisions in the hands of a few,” argues the firm, which reports that, according to a former official, the Adani Group is a ” family business. »
The report details a network of family-controlled fictitious offshore entities located in tax havens, from the Caribbean to Mauritius to the United Arab Emirates, which have been used to facilitate corruption, money laundering and stealing from taxpayers, while siphoning off money from listed group companies. Companies that, in addition, trade on the stock exchange at price levels with price/earnings ratios infinitely higher than those of its counterparts, whether Indian or international. This seems all the more absurd in view of the indebtedness and the fragility of the balance sheet of several of them. Four of the seven entities have negative free cash flow
Stocks that paid 815 times earnings
For example, shares of Adani Green Energy, a negative free cash flow company that operates the Kamuthi Solar Power Project, one of the largest solar photovoltaic power plants in the world, were trading – before nightfall – 815 times earnings, compared to an average ratio of 24 times in this industry. Those of Adani Total Gas, a gas distributor in India in which TotalEnergies is a 37% shareholder, traded with an “enterprise value to Ebitda” ratio of more than 300 times once morest an average of 9 times for competing companies around the world, while it too has a liquidity ratio of less than 1.
Even if you ignore the findings of our investigation and take the financials of Adani Group at face value, its 7 key listed companies have 85% downside purely on a fundamental basis, owing to sky-high valuations. (5/x) pic.twitter.com/uwZ2ogxTLc
— Hindenburg Research (@HindenburgRes) January 25, 2023
Today, Adani Green Energy closed down 3% on the Mumbai Stock Exchange. The producer of electricity from thermal power plants Adani Power lost 5%. -5.5% for Adani Total Gas, -9% almost for Adani Transmission, which manages the local electricity transmission network (-12.5% at the lowest of the session). Adani Wilmar (consumer food products, owner in particular of the best-selling vegetable oils in India, marketed under the Fortune brand) ended down 5% while Adani Ports & Special Economic Zone, another component of the Nifty 50 with Adani Enterprises (-1.5%) specializing in port activities, fell by more than 6%. Of these seven family businesses, six are constituents of the broad Indian index MSCI India, highly prized by ETF providers.
The earthquake at the Mumbai Stock Exchange was not confined to the only companies stamped “Adani” in their name. The recent acquisitions of the group – which has just widened its field of activity to cement and the media – have not escaped the sell off. Thus, the shares of the news broadcaster New Delhi Television (NDTV), which was the subject of a hostile takeover, fell 5%. The cement companies Ambuja and ACC closed the session with respective losses of around 8% and 7%.
In this country, “financial analysts have been arrested”
Hindenburg Research points to the fact that Adani Enterprises (x30 on the stock market in three years) and Adani Total Gas (x44) are audited by a very small firm, without a website, with only four partners and eleven employees, which has only certified the accounts of only one other listed company. India on its way to becoming a global superpower “is slowed down [actuellement dans son développement économique] by the state of disrepair of its financial marketsnotes the American firm. Criticism of India’s elite businessmen and politicians increasingly results in the imprisonment or outright murder of journalists. Financial analysts have been arrested for writing negatively regarding companies. In this climate of stifled expression, corporate fraud went largely unchecked. »
Hindenburg Research recalls that Rajesh Adani, Gautam Adani’s brother, was arrested twice, in 1999 and 2010, on suspicion other than the illegal diamond trade, which Indian authorities investigated in the mid-2000s. “The 1999 arrest was linked to allegations of customs duty evasion, falsification of import documents and illegal imports of coal, according to a media report. The 2010 arrest was linked to another allegation of customs fraud and undervaluation of imported goods, this time in relation to naphtha and petroleum products, according to another media report. Typically, when an executive is suspected of being behind a scheme to defraud the government and is repeatedly arrested, he is fired. In some countries, they end up in prison. At Adani Group, they are apparently promoted. Rajesh Adani currently holds the position of Managing Director of Adani Group. »
