Adani Delivers Tome in Response to Short-Sale ‘Attack on India’

The Adani Group has returned fire after an attack by the short seller Hindenburg Research, attempting to bolster its corporate image after shedding more than US$50 billion in market capitalization.

Adani has released a brief PowerPoint that it entitles the “Myths of Short Seller,” as well as delivering a 413-page PDF tome of a response.

It equates the short seller’s report on Adani with an attack on the entire nation of India, a patriotic assault akin to a war against Asia’s largest democracy.

“This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India,” Adani insists.

There are accusations that the Adani Group and founder Gautam Adani are too close to Indian Prime Minister Narendra Modi. Modi has pursued Hindu nationalist policies and also often equates his own success with the success of the Indian nation.

So this statement does nothing to dispel the notion that Adani has accomplished some aspect of “state capture” through its host of utility and public-service companies. It benefits from swathes of government contracts, and is in some eyes “too big to fail,” since its debt and securities are widely held by Indian state-owned banks and life insurers.

But it’s preposterous to say that Hindenburg has attacked the nation of India. It has not. It has, as I explained last Wednesday, made a series of allegations and raised a number of issues surrounding the operations of the Adani Group. No more than that.

Adani is on surer ground when it says that Hindenburg is selective, misguided or wrong in the facts that it presents. Adani characterizes the short seller as the “Madoffs of Manhattan,” which rather neglects the fact that the actual Madoffs were, in fact, in Manhattan.

Hindenburg’s report is a “malicious combination of selective misinformation and concealed facts relating to baseless and discredited allegations to drive an ulterior motive,” the Adani response states. The mala fide work is “rife with conflict of interest” and intended just to allow Hindenburg to benefit from its short positions, the company insists. “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 to our investors.”

Shares in the group’s flagship, Adani Enterprises (NSE:ADANIENT), stabilized on Monday, closing with a 3.9% gain in Mumbai. That’s after they shed 18.7% on Friday, approaching the 20% daily trading limit in either direction permitted for Indian stocks.

Several other Adani companies hit that 20% stop loss on Friday, and are doing so again today. Wind-and-solar power generator Adani Green Energy (NSE:ADANIGREEN) has descended another 20% on Monday, replicating Friday’s loss, as has natural-gas distributor Adani Total Gas (NSE:ATGL). Electric utility Adani Transmission (NSE:ADANITRANS) also lost 20% on Friday and was down that amount on Monday before a slight rally at the close, to finish down 15.2%.

Hindenburg last week released its own research questioning the high levels of debt at the Adani Group’s companies, as well as the use of shell companies by founder Gautam Adani’s family. Hindenburg, founded by former hedge-fund allocator Nate Anderson, alleges that Gautam Adani, Asia’s richest person, is “pulling the largest con in corporate history.” It has taken short positions against Adani corporate bonds and offshore derivatives.

The short-sale assault has come at a fragile time for Adani Enterprises, which is attempting to sell US$2.45 billion in stock in a secondary offering. The solicitation period opened on Friday for retail investors and runs through Tuesday. But the shares, at 2,870 rupees as of Monday’s close, remain firmly below the offer range of between 3,112 and 3,276 rupees per share.

Anchor institutional investors have already committed to take a chunk of the stock, as I explained on Friday, with backers such as Malaysia-based Maybank, the Abu Dhabi Investment Authority, Citigroup (C) , Goldman Sachs (GS) , Morgan Stanley (MS) , and the massive Life Insurance Corporation of India (NSE:LICI). Collectively, they put in orders at 1.5 times the shares on offer.

But it remains to be seen if there will be any significant demand among retail investors, who can simply buy Adani Enterprises shares in the open market at a cheaper price than the offer.

There’s quite the dichotomy today in the performance of Adani companies. Affiliate Ambuja Cements (NSE:AMBUJACEM) is also higher on Monday, up 1.6% after hefty losses on Friday, and Adani Ports and Special Economic Zone (NSE:ADANIPORTS) closed with a slim 0.6% gain. Foodstuffs manufacturer Adani Wilmar (NSE:AWL) is again down 5.0%, same as Friday, with limited trading. Thermal-power producer Adani Power (NSE:ADANIPOWER) has shown the same exact pattern, down another 5% today.

Hindenburg, which did in fact develop credibility among the short-selling community for a successful attack on the would-be electric truck maker Nikola (NKLA) , raised 88 questions that it hopes Adani will answer. After Adani threatened legal action, the short-sale specialist said it would welcome a lawsuit since that would give it a chance to demand documents that it hopes to see, through the process of legal discovery.

In its presentation, Adani says it is “under no obligation whatsoever to respond to these baseless allegations,” but does attempt to address those questions. It characterizes three overarching themes: “selective and manipulative presentation” of information in the public domain; “complete ignorance or deliberate disregard” of legal and accounting standards as well as industry practice; and “contempt” for Indian institutions, including regulators and the judiciary.

Gautam Adani has literally seen his fortunes fall with the Hindenburg report. He was the third-richest person in the world on the Forbes rich list, but after market losses in his companies, he now ranks eighth. Adani Enterprises has seen its stock rise by 25 times since Covid-induced lows in March 2020, taking Gautam’s personal fortune to north of US$133 billion late last year, the biggest gain by anyone in 2022. But that war chest has shrunk to US$88 billion in the Forbes real-time billionaires list.

Hindenburg says the 413-page response, released late on Sunday, fails to answer 62 of the 88 questions posed. Only about 30 pages actually relate to Hindenburg’s questions, it retorts, with about 330 pages copied from court records, and 53 pages of general information, irrelevant corporate initiatives such as the production of safe vegetables, and high-level financials.

Hindenburg says “fraud cannot be obfuscated by nationalism” or the bloated corporate response. Anderson and Hindenburg had raised the issue of multiple offshore shell companies controlled by Vinod Adani, Gautam’s brother, including 38 entities in Mauritius, which is often used as an offshore base for trading into India. These companies, Hindenburg says, have been used for “stock parking/stock manipulation” or to “engineer” Adani’s accounting.

The Adani response says that the group has disclosed any transactions with related parties “in compliance with Indian laws,” and that “Vinod Adani does not hold any managerial position in any Adani listed entities or their subsidiaries and has no role in their day to day affairs.”

Hindenburg says the group “did not seem to dispute the existence of these transactions and made no effort to explain their obvious irregularities,” but has instead “bizarrely” argued that Vinod Adani is not a related party to the Adani Group. That’s despite transactions “that have collectively moved billions of U.S. dollars through Adani Group entities, largely through offshore shell companies.” Instead, the group has said it is “neither aware nor required to be aware” of the source of funds behind Vinod Adani’s transactions with the group.

“If any of that were true, Gautam could easily clear up the mystery by calling his brother, or asking him at the next family dinner, why he has been directing billions of dollars to Adani-controlled entities through a network of opaque offshore shell entities,” Hindenburg says. Instead, “these explanations simply defy common sense.”

Adani has been more responsive than many a company faced with a short-seller attack. It remains to be seen if its assertions and protestations will restore faith in its listed entities, and provide sufficient evidence for investors to back the secondary stock sale.