On 24 January, investment research firm Hindenburg published a report, accusing the Indian multinational conglomerate Adani Group of stock manipulation and accounting fraud, in schemes that covered decades. Hindenburg called the moves “the largest con in corporate history”, and has raised questions over the legitimacy of the finances behind one of the biggest investors in the power sector.

Gautam Adani, the founder and chairman of the company, has a net worth of around $150bn, adding $100 in the last three years through stock appreciation in the group’s seven key-listed companies. The seven key-listed companies include Adani Green Energy, Adani Total Gas, and Adani power, all based in India, and with significant influence over the global power industry.

According to the report, the Adani Group has already been investigated for fraud by four major governments, and the group has been accused of money laundering, theft of taxpayer funds and corruption. These allegations put the value of these schemes at an estimated $17bn, a vast sum that eclipses many of the group’s energy investments, such as a $442m wind power project in Sri Lanka, announced a month after Hindenburg published its report.

With investigations into the group’s conduct unresolved, and with billions of dollars’ worth of projects potentially on the line, the future is very unclear for one of the wealthiest players in power.

Historic concerns over Adani trades

In 2007, the Securities and Exchange Board of India (SEBI) investigated and prosecuted more than 70 entities, including Adani promoters, for increasing Adani Enterprises’ stock, casting doubt over the legitimacy of the company’s value. In addition, according to regulatory filings, members of the Adani group have breached financial contracts and obligations.

The report as caused protests against Adani around the world, such as this one in London. (Photo by Jessica Girvan/Shutterstock)

“The Adani Group is largely controlled by family members, creating a ripe environment for unilateral and opaque financing decisions,” reads the Hindenburg report, highlighting one of the key structural weaknesses of the Adani group, which has contributed to its alleged illicit activities. India’s Finance Ministry’s anti-smuggling unit investigated and found import-export scams involving diamonds, iron ore, coal and power equipment.

According to the report, the country’s Directorate of Revenue Intelligence’s (DRI) investigative records alleged that Adani’s brother, Rajesh Adani, helped plan a diamond trading scheme from 2004 to 2006. He was arrested following accusations of customs tax evasion, forging documents and illegal imports. Despite having such a record, the brother remains a big part of the Adani Group as the managing director, and according to the DRI investigations, there are many such instances of family members accused of repeatedly committing fraud, yet remaining a vital part of the group.

Perhaps much of the company’s early success could be traced to the skills of these individuals. A former senior Reserve Bank of India official said: “Any group with such a meteoric ride based on borrowings, acquisitions  and an elevated stock price deserves scrutiny. That said, he [Gautam Adani] also has an amazing ability to buy assets on the cheap. That may mitigate credit risk, but worth examining why.”

Yet ultimately, there remains a conflict of interest at the heart of the group. The Hindenburg report reads: “Adani’s key ‘public’ investors are secretive and exhibit behaviour inconsistent with normal investment funds. These funds, that we believe should be classified as ‘promoter’ entities, hold enough shares of Adani-listed companies to put them over the 75% threshold, triggering delisting.”

Adani Group responds

A few days after the Hindenburg report was published, the Adani Group responded with a 413-page report of its own denying all the accusations. The group claimed that Hindenburg had committed a flagrant breach of applicable securities and foreign exchange laws, which the latter went on to deny.

“Adani’s response only included about 30 pages focused on issues related to our report. The remainder of the response consisted of 330 pages of court records, along with 53 pages of high-level financials, general information, and details on irrelevant corporate initiatives, such as how it encourages female entrepreneurship and the production of safe vegetables,” Hindenburg’s response statement read.

Hindenburg had identified 38 shell entities based in Mauritius, including offshore companies controlled by the founder’s elder brother, Vinod Adani. It also found entities controlled by Vinod in Cyprus, the UAE, Singapore and several Caribbean Islands, where favourable tax laws encourage the headquartering of companies.

In response, the Adani Group replied, saying Vinod has not remained a related party to the group, and that his work has not relied upon the funds of the wider organisation.

It said: “We are neither aware nor required to be aware of their ’source of funds‘. [The Group] is not in a position to comment on the allegations on the business dealing and transactions of Mr Vinod Adani.”

The aftermath of the allegations

Soon after the report was published, Adani Enterprises, the Group’s flagship company, began a $2.5bn share offering for retail investors. Since the publication of the report losses in the seven key-listed company stocks were over $65bn, and Gautam Adani’s business has lost more than $145bn from its value. The billionaire’s personal fortune has also fallen by $79bn since the start of this year, making Mukesh Ambani the wealthiest person in Asia. The

French energy firm TotalEnergies decided to wait for the audit results before extending its partnership with Adani to produce green hydrogen. In 2020, TotalEnergies acquired a 20% minority interest in Adani Green Energy. The company has a 50% stake in AGEL23, a deal between the two companies to expand solar power generation in India for a total investment of $2.5bn.

Following the allegations against the Group, TotalEnergies postponed an agreed deal with the group to invest in a green hydrogen project, raising questions as to how effectively other companies will be able to work with the Adani Group as the controversy grows.

“It was announced, nothing was signed,” said TotalEnergies CEO Patrick Pouyanne of the postponed deal, apparently trying to downplay its significance. “It [the hydrogen deal] doesn’t exist. Mr Adani has other things to deal with now, it’s just good sense to pause things while the audit goes forward.”

Ongoing investigations

In early March, the Supreme Court of India set up a committee to investigate the allegations levelled at the Adani Group and its impact on the entire stock market. SEBI has started probing the alleged violation of laws and rules brought to light before and after the publication of the Hindenburg report.

The Financial Times reported that Adani companies paid some creditors ahead of schedule to reassure bondholders, a rare piece of good news for the group’s investors. Karan Adani, managing director of Adani Ports, said the company would repay or pre-pay over $600m of loans in the coming financial year to bring down the debt.

Until this year, Adani built more debt and pushed into areas requiring more investment, including hydrogen and solar businesses, which, combined with the Hindenburg allegations, may have stretched the group’s finances to breaking point. The Financial Times reported that various Adani companies have had to halt any upcoming investments, including an $847mcoal power plant acquisition.

Despite the ongoing speculations, the Adani Group continues to follow its international goals. Adani himself visited Israel last month to complete the group’s joint acquisition of Israel’s Haifa Port. At the same time, the group also bid for an Indian steel plant that is still under construction, which the government intends to sell.

Yet despite the group’s perseverance, the global energy industry could be turning away from Adani. The Hindenburg report created a lot of chaos in the nine listed companies in the Adani Group, as it helped drove a 60% decline in market capitalisation from 24 January to 1 March this year.

Indian minister of state for finance, Pankaj Chaudhary, has said the DRI has concluded the investigations related to imports of power generation, power transmission and infrastructure equipment by the group, and the results of these investigations could dictate the future of the group.