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Mumbai, India – Amid the usual traffic jams at central Mumbai’s busiest intersections, motorists couldn’t help but notice a simple, yet large, hand-painted slogan proclaiming the fortunes of businessmen Gautam Adani and Mukesh Ambani as a miracle of the Narendra Modi government.
But Adani’s fortunes, which had grown to more than $100 billion in less than a decade in the city’s stock market, were eroding faster than the paint on his slogan could dry. The self-titled Adani conglomerate grew by holding a rapidly increasing stake in India’s public infrastructure, including ports, airports, power plants and coal mines.
However, a recent report by New York-based activist short-seller Hindenburg Research revealed a vast array of offshore entities linked to the Adani group, which could be used to boost profits, hide losses or obscure ownership. The report, Adani Group: How the World’s 3rd Richest Man Is Pulling the Biggest Con in Corporate History, said the group was involved in “sham stock manipulation and accounting fraud”.
The report, which came out on January 24, hit India and the group’s list of companies as a re-pursuit of several old management queries that went nowhere. In the days that followed, they wiped more than $110 billion in market value from the group’s listed firms, halving Adani’s net worth.
The Hindenburg report comes as the 200 billion rupee ($2.5 billion) public offering of Adani Group parent Adani Enterprises is set to open on the Bombay Stock Exchange. The group responded to the report on January 27, the day of its public offering, calling it “an attack on India”. He issued a 432-page response and rushed to get the public offering registered.
But share prices of group companies have continued to fall and Adani Enterprises has said it will wind down its offering despite being fully subscribed and the money returned to investors.
The damage from the report extends beyond the Adani Group. Charges of regulatory lapses and questionable corporate governance did not take long for India to find its way to the global center stage. The United Kingdom recently became the world’s fifth largest economy and the world’s most populous country, surpassing China. This year he holds the presidency of the G20.
“Investors are concerned about the risk of contagion,” says Charlie Robertson, chief economist at Renaissance Capital, a market investment bank. “If there’s one such company, can we get more?
For example, after Evergrande in China, investors continued to invest in real estate companies, but many other companies were also in trouble,” he said, referring to the giant Chinese real estate company, which has been heavily indebted in the past two years. Years, the risk may spread to many other real estate firms.
While the size of the conglomerate owned by Adani, the world’s third-richest man, can be matched by few other companies, the incident has left Indian regulators with a lot to answer for.
“This calls into question the credibility of Indian regulators,” said Tim Buckley, director of finance at Climate Energy Australia, who has tracked the Adani group’s various businesses for several years. Germany’s financial watchdog has come under fire for ignoring early warnings about Wirecard, the digital payments firm that was the stock market’s favorite in 2020.
The rise of Adani
60-year-old Gautam Adani is known for his extraordinary ambitions and his personal modesty. After a brief stint as a diamond merchant in Mumbai, in his early twenties, he returned to his home state of Gujarat to enter the business world.
In the year In 2002, months after Prime Minister Narendra Modi became the Chief Minister of Gujarat, religious riots broke out in the state, raising questions about Modi and police brutality. Modi soon began courting big international investors, seeking to burnish the state’s and his own image in an investor-friendly glow.
While Adani is hosting the state’s largest port and several other infrastructure projects, the prime minister is known for getting things done.
But as his wealth grew, Adani had some close personal shaves. In the year In 2008, armed men were staying at the Taj Mahal Palace Hotel in Mumbai. Adani narrowly escaped as the attackers battled with Indian police for days, killing residents and staff before killing themselves.
Years ago, Adani was briefly held for ransom before escaping – events that likely encouraged him to keep a low profile. He recently admitted to spending most nights at his home in Ahmedabad, playing cards with his wife, a trained dentist who now runs the group’s charity work.
Adani is one of seven siblings, most of whom work in the group, and his two sons are Karan and Jeet. Karan is the CEO of Adani Ports and SEZ and was recently appointed to the Maharashtra State Economic Advisory Board.
In the year In 2014, when Modi became the Prime Minister, he arrived in New Delhi on an Adani plane. Since then, Adani has successfully expanded into airports, renewable energy, data centers, defense manufacturing and real estate, among other sectors. Many of the contracts for such infrastructure projects are awarded through competitive bidding.
Rohit Chandra, assistant professor of public policy at IIT Delhi, said: “India does not seem to be interested in developing a variety of regional infrastructure players. “This search for national champions comes at the cost of regional contractors growing and climbing the ladder of project complexity.”
The crisis
Since 2020, since the Hindenburg report, some of Adani Group’s stocks have increased more than 400 times in their per share value. It suggests that shareholders should expect earnings to rise significantly or that the stock is trading at a very high price. Around that time, questions about the team’s ownership began to swirl.
While the Adani family owns the majority of the controlling and licensing stakes, the report shows that offshore funds – in Mauritius, Cyprus and the UK – also appear to hold significant stakes in the group’s companies. Elara, Vespera, Cresta, New Leyna, LTS, APMS, Albula, Asia Investment Corporation and Opal had few, if any, other investments among these funds.
Hindenburg’s analysis shows that most of these companies’ funds are invested in Adani stocks, suggesting that they may be shell companies. The report looked into the relationship between Gautam Adani’s UAE brother Vinod Adani and several others.
Climate Energy Finance’s Buckley said: “When you look at such a complex network of offshore companies, if their operations are mostly in India, the company has an obligation to say why they exist.”
The Hindenburg report said these funds held up to 47 percent of the Adani Group’s shares on certain days and were likely used to prop up the share price.
“Many Vinod Adani-affiliated entities have no clear signs of operation, no reported employees, no independent addresses or phone numbers and no meaningful online presence,” the report said. “Despite this, they have siphoned billions of dollars into India’s Adani publicly listed and private entities, often without disclosure.”
The Adani Group said in its official statement that Vinod was not a related party as he had no official position in the group. A team spokesman did not respond to an emailed request for comment.
Adani Enterprises’ recent public offering said the country’s stock market regulator, the Securities and Exchange Board of India, had asked the group’s publicly listed companies for details of ownership and directors as of November 2020, and the companies had provided these details.
In Parliament, the government said that such an investigation is being conducted, but the findings, if any, have not been made public.
Failure of the Adani Group
Adani Enterprises’ share price fell from 3,442 rupees ($41.5) when the Hindenburg report came out. Confidence in paying over $1.1 billion in bonds. He also announced that some of the promised shares have been released.
But by then Credit Suisse, Citigroup and Standard Chartered had stopped accepting Adani’s bonds, and ratings agency S&P downgraded Adani Ports and Adani Electric to negative.
The cut comes as a result of “management concerns and funding challenges for the larger Adani group,” the report said. S&P also removed Adani Enterprises from the Dow Jones Sustainability Indices, raising the challenge of finding green funding that is key to the proposed transition from coal to renewable energy.
The company has faced a relentless campaign by environmentalists over its coal mining projects in India and Australia. Now referring to the Hindenburg report, related party transactions may not be enough to create walls between renewable and coal businesses.
In the year In 2021, the Adani Group will transfer ownership of Bowen Railway Co., the coal shipping arm, from Adani Ports to Adani Enterprises “to fulfill its carbon neutrality commitment”, market participant Will van de Pol said. An Australian group that encourages banks to make green investments.
Asset transfers are being used to obscure links to the company’s coal expansion plans, prompting investors to stay away from the entire Adani group.
Failure of supervisors
The Adani crisis and its fallout from regulatory agencies and the government is being debated in the Indian Parliament. Opposition parties have demanded a parliamentary inquiry into the group. Investors also say it is needed to restore confidence.
We want to see a credible investigation by the Indian authorities. This is the best way to end the concerns of Indian and international investors,” says Charlie Robertson of Renaissance Capital.
So far, the government has not announced new investigations into Adani Group’s shares and holdings. “The 2030s will be India’s decade,” Modi said in a speech to Parliament on Wednesday, but he made little mention of Adani’s stock slump.
“The regulator needs to do its homework and then act,” says JN Gupta, managing director of Stakeholder Empowerment Services, a corporate governance consultancy.
The investigation could strengthen the government’s efforts to attract foreign direct investment and investment in its markets during the G20 presidency and abroad.
India has looked like an increasingly attractive destination as China deals with lengthy Covid lockdowns and a trade war with the United States. A day before the release of the Hindenburg report, India’s Commerce Minister Piyush Goyal said Apple plans to increase its manufacturing output in India, planning to produce up to 25 percent of its phones in the country, up from the current 5 percent.
But Renaissance Capital’s Robertson says: “Three months ago there was a lot of investment coming into India and China looked dangerous. Today this has changed.
In India itself, one impact of the report could be the execution of infrastructure projects for which the Adani Group has contracts.
“Delaying, scrapping and rescheduling projects are part of the infrastructure development process in most developing countries,” says IT’s Delhi Chandra. “The Adani Group is likely to consolidate, rebalance and possibly reverse some of its project ambitions after the losses it has suffered in the last few weeks.
That may be the delay of the Indian dream itself.
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