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What is Hindenburg Report?
On January 24, a US-based investment research firm named Hindenburg Research published a report on the Adani Group, revealing the findings of their two-year investigation. The report titled 'Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History' made many allegations against the conglomerate, saying that the group has been involved 'in a brazen stock manipulation and accounting fraud scheme over the course of decades.'
The report came two days before a $2.5 billion follow-up public offering was issued by Adani Enterprises.
What is Hindenburg Research?
What is Hindenburg Research?
Hindenburg Research specialises in forensic financial research, and has decades of experience in the investment management industry, the company says in its website. The firm says it focuses on "equity, credit, and derivatives analysis." The research company has short positions in Adani Group's firms through US-traded bonds and non-Indian-traded derivative instruments.
What are the allegations made by Hindenburg Research against the Adani Group?
The Hindenburg report said that the Adani Group's chairman Gautam Adani has added more than $100 billion in the past three years, largely through "stock price appreciation in the group’s 7 key listed companies, which have spiked an average of 819% in that period."
Key listed Adani firms have taken on "substantial debt, including pledging shares of their inflated stock for loans, putting the entire group on precarious financial footing," the report said. The research firm said that five out of seven key listed Adani companies have "reported ‘current ratios’ below 1, indicating near-term liquidity pressure."
The Hindenburg report said that Rajesh Adani, Gautam Adani’s younger brother, was accused by the Directorate of Revenue Intelligence (DRI) of playing a central role in a diamond trading scheme that involved the use of offshore shell firms to generate artificial turnover in 2004-2005. "Rajesh was arrested at least twice over separate allegations of forgery and tax fraud. He was subsequently promoted to serve as Managing Director of Adani Group," the report added.
The research firm said that Adani's elder brother, Vinod Adani, has been described as 'an elusive figure' by media as he has regularly been found at the centre "of the government’s investigations into Adani for his alleged role in managing a network of offshore entities used to facilitate fraud."
Through several close associates, Vinod Adani "manages a vast labyrinth of offshore shell entities," the research firm stated, adding that they found "38 Mauritius shell entities controlled by Vinod Adani or close associates."
The Hindenburg report added that the shell firms operated by Vinod Adani "seem to serve several functions, including (1) stock parking / stock manipulation (2) and laundering money through Adani’s private companies onto the listed companies’ balance sheets in order to maintain the appearance of financial health and solvency."
A right to information (RTI) filed with Sebi by the Hindenburg revealed that "offshore funds are the subjects of an ongoing investigation, more than a year-and-a-half after concerns were initially raised by media and members of parliament."
"We believe the Adani Group has been able to operate a large, flagrant fraud in broad daylight in large part because investors, journalists, citizens and even politicians have been afraid to speak out for fear of reprisal," the research firm said.
The report included 88 questions at the conclusion and said, "If Gautam Adani truly embraces transparency, as he claims, they should be easy questions to answer."
To read the full report by Hindenberg Research, click here.