Adani vs Hindenburg | The battle of truth against falsehood by Dr Abhinandan Ballary (Financial Analyst)

Adani and Hindenburg are not only the town’s new talk but a fight of a businessman to protect his legacy against a report that threw a bunch of allegations against him.

And it’s astonishing how a small research report could wreak such havoc in the Indian equity markets.

For those who are not well aware of the specifics, Hindenburg, a research firm based out of New York City, came up with a research report accusing of "How The World's 3rd Richest Man is Pulling The Largest Con In Corporate History" on 24th January 2023. Besides this, Hindenburg is also a short-sheller, which should immediately ring a bell to those familiar with the term ‘Short Selling. In simple terms, if a stock price goes down, a short seller makes a lot of money.

And being a short seller, Hindenburg also releases long research papers on why they are shorting the stock, hoping that others can join the bandwagon, thus profiting from the down move in the stock price. And this time, they had a massive success in doing so, as the virality of this news affected the stock price of multiple Adani stocks, and as ka result, prices tanked by more than 50% in a matter of two weeks. And that’s a massive win for Hindenburg, it seems.

The Allegations:

But let’s go back to the allegations that the Hindenburg report had.

● Firstly, it accused Adani of corporate fraud, like having people on the board who had been accused of certain crimes or scams in the past. 

● Then they also alleged that Vinod Adani, Adani’s brother, was involved in suspicious stock transactions that resulted in an artificial increase in the stock price. Further, the report claims that he used offshore entities or shell companies to move money from private companies to Adani’s listed companies to paint a better picture of the company's financials.

● Some other allegations include lending a massive amount ($87 million) to an entity (AdiCorp Enterprises) allegedly owned by a friend, who, in return, funnelled the money back into Adani Green. It also claims that in multiple instances, Adani moved capital in and out of his listed stocks when it was convenient to inflate the value.

● Furthermore, the report accuses Adani of playing with the corporate structure to restructure deals to keep them under wraps and more.

The Impact:

And these allegations spread quickly, causing widespread panic among investors who panicked and started to sell their shares, resulting in an erosion of capital of more than $120 billion. And it was not only Adani who suffered due to the price fall. Retail investors who had saved and invested their hard-earned money in these stocks suffered the most.

Apart from the stock, the impact could be seen in several places.

● Despite being fully subscribed, Adani had to cancel their Rs 20,000 crore FPO (Follow-on-public offer).

● Multiple financial institutions stopped accepting Adani securities as collateral for loans.

● The Adani group is also to repay a $500 million loan to a group of international banks in advance to regain investor confidence.

 

Another blatant allegation made against Adani was- He was friends with the Prime Minister of India since they both are from Gujrat. This gave him the unfair advantage of winning tenders and deals. This might seem a puny attack on the image of a businessman who is a perfect fit for a story of “Nothing to Everything.”

But there’s more to it. Such allegations harm the image of the receiving personality and raise fingers at the connected party, which is the Prime Minister of the country in this case.

Analysts have already said that this turmoil has hurt India’s image in the eyes of overseas investors. This is mainly because international investors look for a stable government and calm political nature in a country. So the impact, which people thought was limited to just the Adani group stocks, is now affecting the nation's growth and image.

The Other Side:

Two years back, when stocks of Adani soared and made investors happy, no one questioned the business, its new acquisition, or any of its doings. 

● As per an IBEF report, Adani stated that the group will add around 1 trillion dollars to the Indian GDP every 12 to 18 months during the next decade.

● Adani developed some of the country’s largest port networks and multiple airports. Commissioned new power and transmission projects and helped set up a ton of other infrastructure projects in aerospace, data centre, power, coal and various other industries, in the last decade.

● With all of the above businesses, Adani supported the ‘Make in India’ movement, as it incubated, invested and supported multiple companies and sectors from end to end.

● All of these capex-heavy businesses do require a lot of money, which was taken by the Adanis.

And these massive borrowings have helped the Adani’s to expand rapidly. When asked, “Why do banks continue to lend despite high indebtedness numbers? A senior official at SBI-Caps said- “A previous boss of mine had told us to look at the promoter, project and results before declaring to lend. If the promoter is good and the project is bad, even then, we might get out money back. That is what you have here.”

After all of this, if a report says- “We also believe India’s future is being held back by the Adani Group, which has draped itself in the Indian flag while systematically looting the nation”, It’s safe to assume whoever has put this down, might have a personal agenda behind it. And if you remember, short selling and downgrading the nation’s image can be considered a personal gain if things play out right. And sadly, it already has, to some extent.

Conclusion:

In conclusion, questioning a business's fair practices and ethical standards can be acceptable. But accusing a businessman who has been widely involved in the economic development of a country, and generated enormous wealth for shareholders and some for himself, might not be right. Only because his rise has been astronomical. The story of Adani, which depicts a journey from a humble background to one of the wealthiest persons in the entire world, should be considered an inspiration and not an opportunity to accuse of false allegations and discount the hard work and effort behind the success story.

But in this digital era, spreading hatred and negativity is much easier than positivity. And that’s the harsh reality that we all have to live with.