One of India’s largest conglomerates is rocked by a scandal from which it will not emerge unscathed. Accused of fraud by an American investment company, the action of the Adani group has lost more than half of its value since January 25, or about 100 billion dollars.
Specialized in the negotiation of raw materials, this colossus is also the largest port operator in India, the largest operator of airports, thermal power stations and coal mines, and has several influential media. In 2011, the group even bought the Australian port of Abbot Point to turn it into a coal terminal intended to supply India. Its founder? The self-made-man Gautam Adani, crowned a few weeks ago still third richest man in the world in 2022, after Elon Musk and Bernard Arnault.
Beyond shaking a billionaire and his group, the scandal goes so far as to taint the Indian Prime Minister, Narendra Modi. Displayed as a big supporter of Adani, he is accused of having facilitated the development of infrastructure and of having turned a blind eye to the fraud of the group, which has at the same time invested billions in the government’s energy priorities. Back to what is already called “the biggest scam in history” – or at least in the country.
Warning signs of over-indebtedness
The group’s rapid and exponential expansion into capital-intensive activities prompted a first warning in September 2022, from the debt research agency CreditSights. The latter is sounding the alarm about the holding company’s “deep over-indebtedness”, and warns that its numerous investments in capital-intensive companies could present long-term risks for investors.
The agency also says it found calculation errors in the recent transmission debt report of two power companies controlled by the group, after a conversation with management. Concerns quickly evacuated by the reputation of the company.
David versus Goliath
On January 25, the young and modest American firm Hindenburg Research – named after the disastrous Zeppelin crash in 1937 and known for attacking high-flying companies – publishes explosive new report. She accuses the colossus Adani of massive fraud.
She claims the company manipulated its profits through undisclosed transactions for several decades to “maintain the appearance of good financial health and solvency” of its publicly traded subsidiaries. According to Hindenburg, the founder’s older brother, Vinod Adani, “through several close associates manages a vast network of fictitious offshore entities.”
The report also points to the responsibility of the government which, through its “indulgence towards the group”, would have allowed fraud to be exposed, and prevented the press and the institutions of the country from questioning the behavior of the Adani group by ” fear of reprisals”.
The Empire Strikes Back
Five days later, the empire Adani responds in a report over 400 pages to Hindenburg Research. He renamed the American company the “Madoffs of Manhattan”, in reference to the crooked American businessman Bernard Madoff. The group returns the accusation, and assures that this revelation “is plagued by conflicts of interest and aims only to create a false securities market to allow Hindenburg, a recognized short seller, to make a massive financial gain by illicit means to the detriment of countless investors”.
After denying the disclosure of fraudulent transactions, the statement adds that “this is not just an unwarranted attack on a specific company, but a calculated attack on India, the independence, integrity and quality of Indian institutions. , as well as India’s growth story and ambition”.
The stock market crash
In the days that followed, the revelation provoked, according to Bloomberg News, a mass liquidation of shares in Adani’s companies. While its seven main companies were listed on the stock market at about 220 billion in January, they had lost, Thursday, February 2, nearly 104 billion dollars. The billionaire’s personal fortune also plunges to 70 billion dollars (from 130 previously), dropping him to sixteenth place on the list of world fortunes compiled by Forbes. A public stock sale worth $2.5 billion scheduled for Tuesday, January 31, is cancelled. It was precisely supposed to help reduce the company’s worrying debt levels.
Wednesday, February 1, the title of Adani made a monumental fall of 30% on the Bombay Stock Exchange. After further declines for six consecutive days, several of the group’s securities, such as Adani Green Energy, Adani Ports, Adani Total Gas and Adani Transmission, are suspended. At the origin of this disaster according to Bloombergthe decision of the banking groups Credit Suisse and Citigroup in the United States which stopped accepting the bonds of the Adani group as collateral for the loans they advance to their customers.
Trying to limit the damage, Gautam Adani then speaks in person in a video, released Thursday, February 2. The “fundamentals of our business are very strong, our balance sheet is healthy and our assets are robust,” he said. Bonds rallied slightly the next day after banks Goldman Sachs and JPMorgan advised clients that parts of the Adani portfolio remained strong, again according to an unnamed source. Bloomberg.
The Modi government implicated
Beyond the decline of a company with global influence, it is also the Indian government that is implicated in the American report. Billionaire Gautam Adani’s critics say his closeness to Indian Prime Minister Narendra Modi, like him from the state of Gujarat, has given his group an unfair advantage in winning deals and allowed it to avoid scrutiny. adequate.
A link refuted by the Indian tycoon. On the India Today television channel, this Friday, February 3, he denounces “unfounded allegations” and repeats that his rise and that of his company are not due to his proximity to Narendra Modi. “The fact is that my professional success is not due to a single leader, but to the political and institutional reforms initiated by several leaders and governments over a long period of more than three decades,” he defends.
While opposition MPs are holding the government to account and demanding a debate on the exposure of Indian financial institutions to the group, the government is playing it safe. Indian Finance Minister Nirmala Sitharaman said Friday that her country’s markets were “well regulated” and that the Gautam Adani conglomerate’s stock market debacle would not affect investor confidence.