Sebi probe likely to suggest no major lapses by Adani group companies

Report may name 6 short-sellers and mention gains they made around the time of Hindenburg report's release

The Securities and Exchange Board of India (Sebi), tasked by the Supreme Court with probing whether Gautam Adani’s eponymous conglomerate violated securities laws, has not unearthed any major lapses. As a result, the Adani group is unlikely to face serious regulator action.

The markets regulator, according to sources familiar with the probe report, has been able to establish only one key allegation, which pertains to non-disclosure of related-party transactions. The alleged violation could make the group liable for a penalty of up to Rs 1 crore.
 

The other serious charges, such as alleged manipulation of stock prices and possible violation of insider-trading norms in some of the group stocks, did not see any adverse outcomes in the nearly 150-page probe report. On alleged price volume manipulation at seven Adani group scrips, the regulator concluded that the price rise was mainly due to a thin supply of shares during the period (2020-2022), the sources said.
 

The Sebi probe came in the wake of allegations made by the United States-based short-seller, Hindenburg Research, whose report eroded $100 billion from the market value of the Adani group’s listed entities after its release in late January this year.
 

Sebi’s final report, which it is expected to submit to the Supreme Court on August 29, is likely to feature six short-sellers and the amount they gained due to their short positions in some of the group firms, including the flagship, Adani Enterprises, around the time of the Hindenburg report’s release, between January 18 and January 31. 
 

The Adani group refused to comment, saying the matter was sub judice. An email sent to Sebi remained unanswered till press time.

The apex court had set August 14 as the deadline for Sebi to conclude its probe and submit the report. 

The markets regulator on August 14 sought a 15-day extension to conclude the investigation, and last Friday, it submitted the status report, giving a detailed breakdown of steps taken during the probe.
 

In the status report, Sebi said it had concluded 22 of 24 separate investigations into the Adani group, analysed data on nearly 350 million stock trades, and scrutinised dealings in seven Adani group firms involving thousands of documents.
 

Sebi has cited 13 RPTs (between April 1, 2005 and March 31, 2023) investigations in connection of which have been concluded.
 

A related-party transaction means a transaction involving a transfer of resources/services between a listed entity or its subsidiaries on one hand and a related party of the listed entity or its subsidiaries on the other. A related party is any person or entity belonging to the promoter or promoter group of the listed entity.
 

Sebi has investigated RPTs and loan transactions involving group firms Adani Enterprises, Adani Infra, Adani Power, Adani Mining Pte, and Adani Global with several parties, including NQXT, Adicorp, Carmichael Rail and Port Singapore Holdings, Rehvar Infrastructure, Milestone Tradelinks, and PMC Projects.
 

In connection with the MPS (minimum public shareholding) issue, Sebi said its investigation covered 13 overseas entities (12 foreign portfolio investors and one foreign entity). The probe, it is learnt, is inconclusive because of a lack of information from foreign counterparts.
 

These 13 overseas entities were classified as public shareholders of Adani group companies but allegations, including those made in the Hindenburg report, termed some of them as close associates or being run by Vinod Adani, the elder brother of group chairman Gautam Adani.
 

The investigation in connection with trading in Adani group stocks before and after the release of the Hindenburg Research report is yet to be completed, according to the regulator, which is awaiting information from external agencies/entities actively pursued.
 

Hindenburg Research in the January 24 report critical of the Adani group alleged accounting fraud, stock price manipulation, and improper use of tax havens. This triggered a market rout, especially in Adani group stocks. The Adani group denied all the allegations. 
 

Following this, the Supreme Court asked Sebi to look into the allegations and submit its findings. A separate six-member expert panel was formed in March, which included a retired judge and veteran bankers, to look into regulatory aspects of the allegations. That panel in May stated that Sebi had, so far, drawn a blank in its investigations.

What to expect

> 1 key allegation pertaining to non-disclosure of RPTs is said to be established by Sebi
> Up to Rs 1 crore penalty Adani group may face in this connection
> 22 of 24 investigations into alleged violations by Adani group have been concluded
> No adverse finding likely in connection with alleged manipulation of stock prices and possible insider trading violations
> 150-page probe report Sebi is expected to submit to SC on Tuesday