Gautam Adani dropped out of university and rose to become Asia’s richest man – but now he’s seen his empire rocked by a week of turmoil.
An Indian tycoon has lost his title and tens of billions in personal wealth just days after a US-based short-selling firm accused him of “the biggest fraud in corporate history”.
Adani denied the allegations and accused the short seller Hindenburg of a “calculated attack” on its country.
But the allegations led to bankruptcy for his company and sent shock waves through the markets.
Adani on Thursday scrapped a planned share offering of its flagship company as its conglomerate’s losses topped $100 billion, deepening concerns about a potential wider impact on India’s economy.
Here’s what you need to know:
What are the charges?
Hindenburg Research published a report on January 24 saying Adani Group, one of India’s largest conglomerates, “engaged in a brazen scheme of stock manipulation and accounting fraud for decades.”
The report comes days ahead of a planned $2.5 billion share sale by the conglomerate’s flagship company, Adani Enterprises.
In addition to the accounting fraud, Hindenburg accused the Adani Group of billions of dollars in “dubious dealings with the chairman’s brother Vinod Adani and the offshore labyrinths he used for shareholding.” manipulation.
Hindenburg has a track record of exposing alleged corporate wrongdoing when betting against these companies, a process also known as short selling. Hindenburg disclosed that it has short positions in Adani’s companies through US-traded assets and non-traded derivatives in India. experts said it positioned to take advantage of falling stock prices.
The report, which Hindenburg said was based on interviews with former executives and an examination of thousands of documents, raised concerns about high debt and the performance of senior executives and concluded that seven of Adani’s companies were overvalued.
What did Adani say?
Adani’s business hit back at Hindenburg, threatening legal action and accusing him of sabotaging the share sale.
“The report-induced volatility in Indian stock markets is of great concern and has caused unwanted suffering for Indian citizens,” the conglomerate said in a statement last week.
In another 413-page response a few days later, Adani dismissed Hindenburg’s accusations as baseless, calling the short sellers the “Madoffs of Manhattan.”
“This is not just an unprovoked attack on any particular company, but a calculated attack on India, on the independence, integrity and quality of Indian institutions, on India’s development story and ambition,” Adani said in a statement.
Hindenburg responded that only about 30 of those pages addressed the issues raised in his report, and that Adani did not answer 62 of the 88 questions.
“India’s future is being held back by the Adani Group under the banner of India, which is systematically looting the country,” the research team said. “We also believe that fraud is fraud, even if it is committed by one of the richest people in the world.”
Hindenburg Research and Adani Group did not respond to a request for further comment.
How bad was the damage?
Although Adani denied the claims, the report led to a massive sell-off in Adani Group’s listed companies, which lost $107 billion in value, according to Bloomberg.
According to the Bloomberg Billionaires Index, Adani himself lost $48.5 billion of his $120 billion fortune, falling from third place to 13th place on the list. He also fell one place behind his rival and Indian tycoon Mukesh Ambani, chairman of Reliance Industries.
The record domestic share sell-off after the report was seen as a measure of market confidence in Adani, which initially had enough investor support to continue on Tuesday. But the conglomerate canceled it on Wednesday citing “market volatility”.
“This decision will have no impact on our current operations, as well as our future plans,” Adani said in a recorded video address aimed at reassuring investors, his first public comments since the crisis began.
Adani said the decision to cancel the share offer was made “to protect investors from potential losses”.
“For me, the interest of my investors comes first, everything else is secondary,” he said. “We will continue to focus on timely execution and delivery of projects,” he said.
But the damage may have been done. Adani group companies have lost nearly half of their combined market value since the Hindenburg report was released on January 24.
“If Adani fails to restore the confidence of institutional investors, the stock will fall freely,” Avinash Gorakshakar, head of research at Mumbai-based Profitmart Securities, told Reuters.