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To win back investors' trust, Adani Group to probe Hindenburg allegations
Adani Group on Thursday said that Vinod Adani, the elder brother of group founder Gautam Adani, is a part of the promoter group. This comes after questions were raised about his status following short-seller Hindenburg Research naming him prominently in its January report. The stock exchanges had sought a response from the group after news articles related to it surfaced.
"We would like to submit that Gautam Adani and Rajesh Adani are individual promoters of various listed entities within the Adani Group and Vinod Adani is an immediate relative of the individual promoters," the group's flagship Adani Enterprises said in a stock exchange filing on Thursday.
So, as per the Indian regulations, "Vinod Adani is part of the 'promoter group' of various listed entities within the Adani Group," it said.
A recent report by The Morning Context stated that Vinod Adani was a beneficiary owner of Ambuja Cements and its subsidiary ACC Limited through offshore companies. It said the group used a special-purpose vehicle to acquire the two companies from the Holcim Group. SPVs are created for special and temporary objectives. They have different assets and liabilities from their parent company.
What did Hindenburg Research say about Adani Group?
Hindenburg Research in January released a report on the Adani Group stating that it uses a web of companies in tax havens to inflate its revenue and stock prices. It said the company was engaged in decades of "brazen" stock manipulation and accounting fraud. It also claimed that companies had "substantial debt", putting the group on a "precarious financial footing".
It said that the group had been subjected to four major government investigations related to allegations of fraud. However, the auditor "hardly seems capable of complex audit work" as Adani Enterprises alone has 156 subsidiaries.
What did the Hindenburg Research say about Vinod Adani?
Vinod Adani is widely reported to work out of Dubai in the United Arab Emirates. Regulatory filings show he is a Cypriot national.
The report said that Vinod was key in managing "a vast labyrinth of offshore shell entities" to facilitate fraud. The report identified 38 shell companies based in Mauritius, which Vinod or his close associates controlled.
The manipulation, it said, was helping the conglomerate's companies maintain their appearance of financial health.
It added that several firms are "surreptitiously controlled" by Vinod in Cyprus, UAE, Singapore and several Caribbean islands. Many of these firms have "no obvious signs" of operations.
"Despite this, they have collectively moved billions of dollars into Indian Adani publicly listed and private entities, often without required disclosure of the related party nature of the deals," it said.
"One of the websites for a Vinod Adani-associated entity claimed 'we trade in Services such as sale and delivery of an intangible product, like a Service, between a producer and consumer.' What does that even mean?" it added.
How did Adani Group respond to the Hindenburg's allegations?
Following Hindenburg's 106-page report, the Adani Group issued a 413-page response. It said the report was a "calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India".
"It is tremendously concerning that the statements of an entity sitting thousands of miles away, with no credibility or ethics, has caused serious and unprecedented adverse impact on our investors," the Adani Group said.
The group also said the report was a "malicious combination of selective misinformation and concealed facts relating to baseless and discredited allegations to drive an ulterior motive".
How did the Adani Group respond to allegations against Vinod Adani?
The conglomerate in January said, "Vinod Adani does not hold any managerial position in Adani listed entities or their subsidiaries and has no role in their day-to-day affairs."
"We reiterate that any transactions by the Adani portfolio companies with any related party have been duly identified and disclosed as related party transactions in compliance with Indian laws and standards and have been carried out on arm's length terms," it said.
On Thursday, the group said that Vinod Adani was part of the promoter group and had been submitted to Indian regulatory authorities from time to time in various disclosures.
"Further, the fact that Endeavour Trade and Investment Limited (an entity controlled by Vinod Adani), the acquirer of ACC Limited and Ambuja Cements Limited, belongs to the Adani Group has been disclosed in the public offer document," it added.
When Adani Group bought Swiss giant Holcim AG's stake in Ambuja Cements and ACC, the deal was completed via a Mauritius-based entity called Endeavour Trade and Investment. According to The Morning Context, this was the name of the SPV.
What is the impact of the Hindenburg Research report on the Adani Group?
The report has shaken the conglomerate. Since the report's release, the conglomerate's listed companies saw a massive sell-off. The Adani Group also cancelled a $2.5 billion follow-on public offer (FPO) of its flagship firm Adani Enterprises, even after it was fully subscribed.
The valuation of the conglomerate has more than halved since the report was released not even two months ago.
Gautam Adani, who was the third richest person on the planet just before the report was released, currently stands at the 21st spot on the Bloomberg Billionaires Index. His net worth as of March 17 is $56.08 billion, and he has lost $64.5 billion this year alone.
What is Hindenburg Research?
It is a US-based firm that specialises in financial research. It looks for accounting irregularities, illegal or unethical practices and undisclosed issues.
Its website says, "Our experience in the investment management industry spans decades, with a historical focus on equity, credit, and derivatives analysis".
Its name is based on the Hindenburg disaster that took place in 1937 when a German passenger airship caught fire, killing 35 people.
"We view the Hindenburg as the epitome of a totally man-made, totally avoidable disaster. Almost 100 people were loaded onto a balloon filled with the most flammable element in the universe (hydrogen). This was despite dozens of earlier hydrogen-based aircraft meeting with similar fates. Nonetheless, the operators of the Hindenburg forged ahead, adopting the oft-cited Wall Street maxim of 'this time is different'," it says on its website.
(With agency inputs)
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First Published: Fri, March 17 2023. 11:41 IST
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