Adani Group of Companies

Controversy:-

Adani Group:-
Adani Group is an Indian multinational conglomerate, headquartered
in Ahmedabad. It was founded by Gautam Adani, in 1988 as a commodity
trading business, with the flagship company Adani Enterprises. The Group's
diverse businesses include port management, electric
power generation and transmission, renewable energy, mining, airport
operations, natural gas, food processing and infrastructure.
In April 2021, Adani Group crossed US$100 billion IN market capitalization,
and in April 2022 it crossed the US$200 billion mark, in both cases becoming
the third Indian conglomerate to do so, after Tata Group and Reliance
Industries. In November 2022, it reached US$280 billion (INR 24 trillion)
surpassing Tata Group. Adani subsequently lost more than US$104 billion of
market capitalization after fraud and market manipulation allegations by
short-seller firm Hindenburg Research. The Adani Group has also attracted
other controversies due to various reports of irregular practices. More than 60
percent of the Adani Group's revenue is derived from coal-related
businesses. The company's corporate debt totals $30 billion in 2022.
History of Adani Group:
Adani Exports Limited started as a commodity trading company in
1988 and expanded into importing and exporting multiple
commodities. With a capital of ₹5 lakhs, the company was established
as a partnership firm with the flagship company Adani Enterprises,
previously Adani Exports. In 1990, the Adani Group developed its own
port in Mundra to provide a base for its trading operations. It began
construction at Mundra in 1995. In 1998, it became the top net foreign
exchange earner for India Inc. The company began coal trading in
1999, followed by a joint venture in edible oil refining in 2000 with the
formation of Adani Wilmar.
The group's second phase started with the creation of large
infrastructure assets. The company established a portfolio of
ports, power plants, mines, ships and railway lines inside and outside
India.
Adani handled 4 Mt of cargo at Mundra in 2002, becoming the largest
private port in India. Later in 2006, the company became the
largest coal importer in India with 11 Mt of coal handling. The
company expanded its business in 2008, purchasing Bunyu Mine in
Indonesia which has 180 Mt of coal reserves. In 2009 the firm began
generating 330 MW of thermal power. It also built an edible oil refining
capacity in India of 2.2 Mt per annum. Adani Enterprises became the
largest trading house in India importing coal, with a market share 60%.
It also supplies coal to NTPC, India.
The Adani group became India's largest private coal mining company
after Adani Enterprises won the Orissa mine rights in
2010. Operations at the Port of Dahej commenced in 2011 and its
capacity subsequently grew to 20 Mt. The company also bought
Galilee Basin mine in Australia with 10.4 gigatonnes (Gt) of coal
reserves. It also commissioned 60 Mt of handling capacity for the coal
import terminal in Mundra, making it the world's largest.
In 2011, the Adani group also bought Abbot Point port in Australia with
50 Mt of handling capacity. It commissioned India's largest solar
power plant with a capacity 40 MW. As the firm achieved 3,960 MW
capacity, it became the largest private sector thermal power producer
in India. In 2012 The company shifted its focus on three business
clusters – resources, logistics and energy.
Hindenburg Research Company :-

Hindenburg Research LLC is an investment research firm with a focus

on activist short-selling founded by Nathan Anderson in 2017, based in
New York City. Named after the 1937 Hindenburg disaster, which they
characterize as a human-made avoidable disaster, the firm generates
public reports via its website that allege corporate fraud Companies that
have been the subjects of their reports include Adani
Group, Nikola, Clover Health Kandi, and Lords town Motors. These
reports also feature defences of the practice of short-selling and how
they "play a critical role in exposing fraud. The Hindenburg company is
mainly involved in “forensic financial research,” i.e. It looks for
corruption or fraud in the business world, such as accounting
irregularities, bad actors in management etc. Hindenburg company was
named after a tragedy in 1937 in which an airship named ‘Hindenburg’
caught on fire and 35 people died in this accident.
 About Hindenburg Research

 The company Hindenburg was established in 2017, by Nathan Nate

Anderson.
 Within 3 days of the report being released the Adani group of
companies lost approximately 65 billion dollars in share value over
all.
 Hindenburg responded to Adani's rebuttal by saying “fraud
cannot be obfuscated by nationalism.”
 If Hindenburg is proven wrong then they will suffer heavy losses as
they have been actively short selling the stocks of Adani’s companies.
 The Hindenburg company is mainly involved in “forensic
financial research, i.e It looks for corruption or fraud in the
business world , such as accounting irregularities , bad actors in
management etc.
 Hindenburg company was named after a tragedy in 1937 in
which an airship named ‘Hindenburg’ caught on fire and 35
people died in this accident.
Allegations On Adani Group of companies By Hindenburg
Company :-

Family Empire

Vinod Adani elder brother of Gautam Adani. He is a citizen of Cyprus

and resident of Dubai and Singapore. He is the director of over a
dozen trusts and companies registered across many countries.
Hindenburg says that he has 38 Mauritius shell entities. 

Hindenburg alleges that the shell companies owned by Vinod Adani 

invests in Adani Group’s stocks. According to the rules laid down by
SEBI, which is India's stock market regulator, at least 25% of a public
company’s shares should be held by the public. This means that the
promoters cannot hold more than 75% of the company’s shares. The
promoters are people who control a company. The promoters of the
Adani Group are the Adani family. Hindenburg alleges that the
promoters of the Adani Group, that is the Adani family control more
than 75% of the company’s shares. Allegedly, by using the shell
companies the family cloak themselves as regular investors. The
stock prices of the group have increased artificially, claims the report
of Hindenburg. This is how the Adani Group has turned into a family
empire and violated SEBI's 25% rule. The report states that four of the
publicly listed companies have exceeded the 75% limit set by the
SEBI.

 In addition to Vinod Dani, Hindenburg has also made allegations

against Rajesh Adani. He has been embroiled in many government
investigations. For example; in 1999 he was arrested by the
Directorate of Revenue Intelligence on charges of forging documents
and evading duty on coal import to the tune of Rupees 1.40cr.  
The report states that despite having a questionable history, He was 
promoted to the post of managing director of the group. Similarly,
Gautam Adani’s brother-in-law, Samir Vora has been involved in
several legal cases. Despite this, he was promoted to the position of
executive director of Adani’s Australia division. The Hindenburg report
has questioned why these individuals were promoted to top positions.
The report pointed out that 8 of 22 key leaders in the group belong to
the Adani family. So the first allegation leveled against the Adani
group was violating the rules of SEBI. It’s because of the over
involvement of the Adani family in the group.

Shell Companies

The second allegation is that the Adani group uses shell companies to
inflate the prices of its stocks. Hindenburg states that a network of
offshore and shell companies is involved in Round Trip Trading. It is a
method using which a company keeps buying and selling its stocks to
artificially increase its stock price. This increases the trading volume
on paper, but that does not imply that real investors are trading with
the stocks. It is alleged that the Adani group uses shell companies to
increase its profit. Hindenburg gave an example of a Mauritius
company led by Vinod Adani which transferred hundreds of crores of
rupees to an Adani Enterprise (Private). The enterprise then
transferred the money to another Adani enterprise (Public) to create
an illusion that the latter had earned a profit. This is done to earn the
public's confidence in the company’s stocks driving more investing
and ultimately increasing the stock price. Hindenberg mentioned a
company called Elara Capital based in Mauritius in its report. The
company holds nearly 3 billion dollars, worth of Adani shares. It
alleges that Elara Capital’s sole purpose of the operation is to
manipulate the prices of Adani Group’s stocks.

Debts

The third allegation is that the Adani group is in huge debt. These
allegations were leveled at five of the companies under the Adani
group. 

The report claimed that the current ratio of these five companies is
lower than one. This means their current assets are valued lower than
their current liabilities. Hindenberg claims that the promoter shares of
the Adani Group have been used as collateral. These are the same
shares whose prices have been artificially inflated, Hindenburg claims.

Government Support

The fourth allegation is that the Indian Government has been showing
leniency towards the Adani Group. The report alleged that the Adani
Group has been involved in corruption, money laundering and other
illegal operations, which has helped it amass a profit of 17 billion
dollars. Despite this, the group has not been properly investigated. For
example- an ongoing probe of 3 years on Adani Power was Director of
Revenue Intelligence. The report also mentioned investigative
documents accusing the Adani group of bribing many government
officials. Moreover, many public sector institutions have allegedly
invested heavily in Adani group. In 2022, the group borrowed 20 billion
dollars from which 21% of the amount came from Indian public banks.
For example; LIC and SBI.

Unknown Auditors

The fifth allegation is that the group had not hired proper auditors to
verify its financial statements. Hindenburg claimed that an unknown
company with 11 employees and 4 partners audited the group. Shah
Dhandharia is the name of that company. How come such a tiny
company could audit a graph group as huge as Adani? On the
publication of the report, the Adani group responded aggressively. The
CFO of the group deemed the report baseless. The legal head of
Adani group claimed that this report was published to bring down
Adani Enterprises INR 20,000 crore-worth FPO (Follow on Public
Offering). The executives from Adani Group that this report is a
‘calculated’ attack on India.