Adani vs Hindenburg Scandal: What Exactly Happened, and Will Adani Recover?

Adani Recover

How did Asia’s richest man lose billions of dollars, and what happens next? Read on.

In 1988, Gautam Adani, a school dropout, launched Adani Enterprises. The primary focus of the conglomerate’s portfolio remained transport and energy, then expanded to mining, airports and more. Adani was so successful in the venture that last year, he was crowned the richest man in Asia and the third richest worldwide, with US$120 billion to his name. Then, Hindenburg Research, a financial research firm established in 2017, released a report claiming that Adani had pulled “the largest con in corporate history”. All hell broke loose, causing the company’s valuation to fall by US$100 billion as Adani’s personal wealth plummeted by over US$60 billion.

What did the Hindenburg report say?

Released on January 24, 2023, the 106-page scathing Hindenburg Research report resulted from two years of speaking with individuals and senior executives, poring over hundreds of documents and conducting site visits worldwide. The report holds Adani responsible for stock manipulation, corruption, pump-and-dump schemes and much more.

The report—where the authors remained unnamed—noted, “We reveal the findings of our two-year investigation, presenting evidence that the US$218 billion Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.”

The short-selling-focused Hindenburg Research claimed that Adani’s businesses ran offshore shell companies in tax havens, like Mauritius, the UAE and the Caribbean islands, and informed that the company was in high debt, up to US$11 billion. 

The research named many Adani family members, emphasizing the role of Adani’s elder brother, Vinod Adani, whom the report dubs “an elusive figure”, with little known about him. Allegedly, Vinod holds numerous non-operational offshore shell companies and once had 13 websites made in a single day with no substance to create a facade.

As per the Hindenburg report, “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.” At the end of its report, Hindenburg listed 88 questions related to its investigation, seeking answers from Adani.

What has transpired since?

  • Adani lost his spot as the richest man in Asia and India. In India, Reliance Founder Mukesh Ambani takes the throne. 
  • All eyes were on Indian banks that loaned Adani Group money. Though many large Indian banks are exposed to Adani stocks, the financial authorities claim it is manageable and insufficient to destabilize them. While they are not severely affected, they are also not willing to jump on the Adani bandwagon anytime soon as Adani faces a potential loan recall. Currently, Adani has undertaken a US$500 million loan after banks refused to help. 
  • Shares of the conglomerate fell by 55% since the report was released as investors lost confidence in the company. However, they jumped 25% when the company pre-paid some of the debt. 
  • Adani also got kicked off the S&P Dow Jones Sustainability Indices. The global source for investable indices released a press release stating that it booted off Adani following a Media & Stakeholder Analysis triggered by allegations of stock manipulation and accounting fraud.”

How legitimate is Hindenburg?

While Adani lost much, many questioned the legitimacy of Hindenburg. The research firm is notorious for targeting certain companies. As a short seller, the firm bets against companies and profits when their stock prices fall. Some have called Hindenburg a “Ponzi hunter”. The U.S. Department of Justice is investigating the firm for illegal trading strategies.

The firm admitted to holding a short position in Adani in its report. So, it could be likely that this report is a malicious attempt at tarnishing Adani’s image. Or, it may be the tipping point for Adani.

Will Adani recover?

Adani’s reputation is at stake. And as anyone in his position, he is currently on the damage control spiral:

  • The group released a rebuttal on January 29, 2023, responding to many of Hindenburg’s questions. The company said the report is “rife with conflict of interest and intended only to create a false market in securities to enable Hindenburg, an admitted short seller, to book massive financial gain through wrongful means at the cost of countless investors.” 
  • Adani got a big four on board to audit the conglomerate. Till the audit is complete, one of its most prominent foreign investors, TotalEnergies, has decided to hold off on a massive investment in the company’s hydrogen project.

Adani claims the report is a targeted attack to keep the company from succeeding in an upcoming share offering. Adani Group’s Chief Financial Officer, Jugeshinder Singh, called the report a “malicious combination of selective misinformation and stale, baseless and discredited allegations”.

Adani appears to be doing something right, seeing how its crisis management tactics have led its shares to rebound 101% in four days

However, skepticism abounds. Whether this is a political conspiracy or an elaborate fraud is difficult to ascertain at this point. Many big and small investors are currently at the edge of their seats, awaiting some clarity on the matter.

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