India’s Adani Group called off its $2.5 billion share sale late on Wednesday, in a dramatic reversal triggered by the ongoing meltdown of its company stock prices.
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Hindenburg Research criticised the Indian conglomerate in a Jan. 24 report ahead of the Adani Enterprises share sale, setting off an $86 billion rout in the group’s domestically listed stocks and a sell-off in its bonds listed overseas.
Here are some of the points raised and the Adani Group’s responses.
Who are Adani and Hidenburg?
Gautam Adani, from Gujarat in western India, built his empire after starting out as a commodities trader. India’s Prime Minister Narendra Modi is from the same state and their relationship has long come under scrutiny by Modi’s opponents.
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A school drop-out, Adani rose to become Asia’s richest man whose $220 billion empire spans ports, power generation, airports, mining, edible oils, renewables, media and cement.
Until last week, Adani was the world’s third-richest man but has dropped down the ranks to number 15 on the Forbes rich list after the rout in Adani group stocks.
Founded in 2017 by Nathan Anderson, Hindenburg Research is a forensic financial research firm which analyses equity, credit and derivatives. It has a track-record of finding corporate wrongdoings and placing bets against the companies.
What did Hindenburg say?
Hindenburg disclosed that it holds short positions in Adani companies through U.S.-traded bonds and non-Indian-traded derivatives.
It released a report alongside the disclosure alleging improper use of tax havens and flagging concerns about debt levels.
What was Adani’s response?
The Adani group has called the report baseless and termed the allegations “unsubstantiated speculations”.
Is this the first time these issues have been raised?
No. India’s capital markets regulator, the Securities and Exchange Board of India, has investigated some of these issues over the past year following local media reports.
Reuters reported the regulator will continue this scrutiny and draw on any fresh information in the Hindenburg report.
The regulator has launched a “full-scale” investigation into the recent crash in shares of Adani Group companies and is also looking into any possible irregularities in the $2.5 billion share sale, Reuters reported on Wednesday.
What does Hindenburg say about financial controls?
The short-seller has said that listed Adani companies have seen a number of changes in chief financial officers (CFOs) and that auditors used by the group are relatively unknown.
It said Adani Enterprises has had five chief financial officers over the course of eight years, citing this aS “a key red flag indicating potential accounting issues”.
How has Adani responded?
The Adani group said that several of the CFOs that the Hindenburg report points to have remained within the group and moved on to new roles.
On the quality of audits, it said that the audit committee of each of the listed companies is composed entirely of independent directors, and auditors are appointed on their recommendation.
On Tuesday, Mint newspaper reported that Adani is considering an independent audit of group companies to resassure investors. Reuters could not independently verify this.
Late on Wednesday, Adani Enterprises called off its $2.5 billion share sale in a dramatic reversal as a rout sparked by a U.S. short-seller’s criticisms wiped billions more off the value of the Indian tycoon’s stocks.
Hidenburg’s view of Adani leverage and what is the Group’s response?
The report says key listed Adani companies have substantial debt and are over-leveraged. It also says the group faces liquidity risks due to high short term liabilities, with five of the seven key listed companies having reported “current ratios” below 1, indicating near-term liquidity pressure.
Adani responded by saying leverage ratios of its companies continue to be healthy and are in line with the industry benchmarks of the respective sectors, further adding that this information is publicly disclosed regularly.