The Adani Group, one of India’s biggest companies, recently launched the country's largest Follow-on Public Offering (FPO) to raise ₹20,000 crores from investors. However, the response has been surprisingly low, with only 1% of the shares being subscribed and just 2% of the retail portion taken up. This poor response is mainly due to a report released by Hindenburg Research just before the FPO, which has caused a lot of controversy.

What Did Hindenburg Say?

Hindenburg Research, known for investigating companies they believe are overvalued or involved in wrongdoing, published a 106-page report making serious allegations against the Adani Group. Here are the key points:

1. Pledged Shares: Hindenburg raised concerns that a large portion of Adani Group shares has been used as collateral for loans. This is risky because if the share prices fall, the lenders might sell these shares, causing prices to drop even more.
2. Tax Evasion and Financial Tricks: Despite being one of India’s richest people, Gautam Adani is reportedly only the 10th highest taxpayer. Hindenburg accused the Adani Group of avoiding taxes through activities like diamond trading, over-invoicing, and other financial schemes.
3. Offshore Payments: The report highlighted a ₹780 crore payment made by Adani Enterprises to an offshore company in Australia. Hindenburg suggested this payment might not have been transparent because the offshore company was allegedly owned by the Adani Group itself.
4. Market Manipulatioeased their holdings, which raised suspicions of manipulation.
5. Complicated Corpon: Hindenburg claimed that in 2019, Adani Green, part of the Adani Group, used a broker involved in market rigging for its share sale. After the sale, some foreign investors incrrate Structure: Hindenburg criticized the Adani Group’s complex structure, with 578 subsidiaries and over 6,000 related-party transactions in one year. This complexity makes it hard to track financial activities, raising concerns about transparency.
6. Questionable Shareholdings: Hindenburg questioned the large number of Adani Group shares held by offshore funds, suggesting these funds might be controlled by the Adani Group to manipulate stock prices.
7. Silencing Journalists: Another serious accusation was that the Adani Group has used its influence to silence journalists who report critically on the company, with some even being jailed.

Hindenburg’s Key Points

Hindenburg’s report wasn’t just about new accusations; it also pointed out existing issues:

• Overvalued Stocks: Hindenburg claimed that the seven key listed companies of the Adani Group are overvalued by as much as 85%, even without considering the new allegations.
• High Debt Levels: The Adani Group has taken on a lot of debt, much of it backed by shares that Hindenburg claims are inflated. This puts the group in a risky financial position.

Financial Health of Adani Group

Despite these allegations, the Adani Group has shown some positive financial trends:

• Lower Debt: The group has managed to reduce its debt-to-EBITDA ratio, meaning its debt is now smaller compared to its earnings.
• Earnings Growth: The group’s earnings have been growing at a healthy rate of 22% per year.
• Continued Borrowing: However, the group’s debt has also been growing, showing it still relies heavily on borrowing.

Adani Group’s Response

In response to the Hindenburg report, the Adani Group issued a 413-page rebuttal, strongly denying all allegations and defending its practices:

• Transparency and Compliance: The group argued that most of the issues raised by Hindenburg were already disclosed in their financial reports.
• Legal Standards: Adani stated that it follows the highest standards of governance and accused Hindenburg of not understanding Indian laws.
• Market Manipulation Claims: The group suggested that Hindenburg’s report was a deliberate attempt to manipulate the market for financial gain, as Hindenburg stands to profit from a decline in Adani’s stock prices.

Impact on Adani Group Stocks

The Hindenburg report has significantly impacted the Adani Group’s stock prices:

• Massive Losses: The group has lost over $48 billion in market value since the report was published, causing a sharp decline in investor confidence.
• Stock Performance:some text
  • Adani Enterprises: -1.50%
  • Adani Green: -3.08%
  • Adani Ports: -6.59%
  • Adani Transmission: -8.85%

These sharp declines have also affected the broader Indian stock market, with Adani Group stocks dragging down the indices.

Conclusion

The clash between Hindenburg and the Adani Group has created significant turmoil in the Indian stock market and raised serious questions about the Adani Group’s business practices. While the Adani Group has strongly denied the allegations, the controversy has led to a massive drop in stock prices and a loss of investor confidence. The long-term impact on the Adani Group remains to be seen as the situation continues to unfold.

‍