🤔 Is Adani Pulling A Long Con?: Hindenburg Research's Claims Decoded
Hindenburg Research has claimed Adani Group has been engaged in fraud for decades now, putting public money at risk. So, we read their 90-pager report to bring out the main allegations. ReadOn!
That’s how much the Adani Group companies lost in one day!
How did this massive conglomerate lose such a huge amount in less than 24 hours?
All thanks to one report by Hindenburg Research titled: Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History
Yes, the pen (in this case the laptop) can really be mightier than the sword.
So, what exactly was in this report? ReadOn to find out!
💡Context First: What is Hindenburg Research?
Hindenburg Research is an investment research firm that engages in activist short selling!
It shorts shares and at the same time reveals negative information about the company whose shares it is shorting. It has shared several such reports about companies like Nikola Motor Company and Clover Health.
Right now, it has shorted Adani shares.
Okay, but what does the report say?
Well, the main claim is that Adani Group is sketchy and engages in stock manipulation and accounting fraud.
How, you ask?
Well, they have detailed this in 90+ pages!
We’re here to capture the main points for you, so you don’t have to read the report.
📜Hindenburg’s Allegations
Well, some of Hindenburg’s allegations are old:
Adani companies are overvalued.
Adani Group has massive debt.
Many Adani promoters' shares have also been pledged to take debt. If promoters can't pay the debt, their stake could be sold, bringing down stock prices.
We’ve already covered these in detail earlier here.
😯Newer and Bolder Allegations
Some allegations are relatively new (and interesting!)
Allegation 1: Many of Adani's shareholders are offshore entities.
Hindenburg claims they are controlled by Adani/related parties.
Result?
Adani's actual promoter threshold is above SEBI's 75% permissible mark for listed companies.Â
This helps it avoid being delisted by the regulator, and still have 75%+ control!
Allegation 2: Many of these entities are sketchy...
5 investment funds which have Rs. 360 bn worth of holdings in Adani Group have...
the same incorporator (Monterosa Holdings)
 the same address and
 multiple overlapping nominee directors!
And these aren't the only sketchy funds associated with Adani Group.
Hindenburg identified 3 more sketchy entities.
Elara CapitalÂ
New Leiana InvestmentsÂ
Opal Investments
How are they sketchy?
Monterosa Holdings: CEO has ties to fugitive diamond merchant Jatin Mehta.
Elara Capital: Has a fund with 99% Adani holdings. It also deals with Dharmesh Doshi, accused in a Rs. 1,030 cr bank scam.
New Leiana: Managed by Amicorp, involved in the 1MDB scam.
Opal Investments: Opal CEO openly claims to have ties with the Adani Group.
Allegation 3: These sketchy companies are being used for "stock parking".
What is stock parking? When someone else holds shares on your behalf to hide the real ownership.
But stock parking is not where things end…
Allegation 4: These entities are being used for stock manipulation.
Hindenburg's reasons for saying this…
Adani Promoters aided Ketan Parekh (known stock manipulator) in manipulating Adani scrips (according to SEBI)Â
SEBI prosecuted over 70 entities including Adani promoters, for pumping Adani Enterprises’ stock.
Gautam Adani’s elder brother Vinod allegedly runs a network of shell companies engaged in stock manipulation
But how is the stock being manipulated?
Adani Group supposedly transfers money to shell companies in foreign countries, which then use the money to buy Adani Group companies' shares, manipulating prices.
According to Hindenburg, shell companies accounted for 30-47% of Adani's delivery volume.
That's not all...
Accounting Frauds at Adani Group
Allegation 5: Shell companies are also lending money to the Adani Group.
This is the office of a company that lent Rs. 15 bn to the Adani Group...
What is done with this money?
It is allegedly routed back to Adani through other companies like PMC Projects.
The operation seems focused on converting black money to white.
Allegation 6: Shell companies are also used for earnings manipulation.
Assets that need to be written off are transferred to shell companies so that they don't impact the listed entity's net income.
Other major red flags:
5 CFOs in 8 years
Auditing done by 23-24-year-olds; auditing firm only has 11 employees
Adani allegedly built an empire out of four major import-export scams.
But let's look at the other side of the story.
Adani’s Side of the Story
As we said, Hindenburg Research is a short-seller.
Though the report is in the public interest, Hindenburg also benefitted financially.
The Adani Group has claimed that the report is timed to tank its follow-on public offer and to be honest, the timing is suspicious.
Here is their response:
But these claims should be checked and verified by an Indian agency or auditor.
Hindenburg has also left 88 questions for Adani to answer.
Let's see if we get their answers.
What do you think: Is Adani Group a bubble waiting to burst or is Hindenburg Research being opportunistic?
Disclaimer: This is not investment advice. We are just putting across Hindenburg's claims.Â
Let us know if you found this informative. You can reply to this email with your responses or ping us directly on WhatsApp!Â
The way this entire fraud allegations are decoded step by step is praise worthy. Loved the article.