India's Gautam Adani accused of pulling 'largest con in corporate history'

Asia's richest man Gautam Adani has seen his net worth drop by nearly $11 billion after a US investment firm accused him of "brazen stock manipulation and accounting fraud".

Adani, 60, is the world's third-richest person, with an estimated fortune of around $120 billion and interests ranging from Australian coal mines to India's busiest ports.

But the magnate lost billions after allegations by short-selling firm Hindenburg Research that caused shares in its companies to plunge as investors rushed to sell shares in his group of companies.

Hindenburg Research published a report "Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History" on Tuesday alleging that Adani Group "has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades".

The firm said it had taken a short position in Adani Group companies after a two-year investigation based on interviews with former executives, site visits in multiple countries and document reviews.

Its report claims that Adani's elder brother Vinod "manages a vast labyrinth of offshore shell entities" in tax havens including Mauritius, Cyprus and several Caribbean islands.

Hindenburg said it had identified numerous instances of undisclosed related-party transactions and earnings manipulation "to maintain the appearance of financial health and solvency" of listed Adani companies.

The allegations come ahead of an ambitious $2.5 billion follow-on public offer — India's biggest-ever — due to open for bids on Friday and aimed at bolstering the business empire's balance sheet.

"The report is a malicious combination of selective misinformation and stale, baseless and discredited allegations," Adani Group chief financial officer Jugeshinder Singh said in a statement.

Singh added that the report had been deliberately timed to undermine the conglomerate's reputation "with the principal objective of damaging the upcoming follow-on public offering".

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'Afraid to speak out'

Adani Group is India's second-largest conglomerate, with the combined market capitalisation of its seven listed companies exceeding $218 billion.

Shares in Adani business units have soared up to 2,000 percent in the past three years, adding more than $100 billion to its founder's net worth and vaulting him up the ranks of the world's richest people.

Critics of the billionaire attribute his meteoric rise to a close association with Hindu nationalist Prime Minister Narendra Modi and support for his policies.

Hindenburg's report said there had been a pattern of "government leniency towards the group" stretching back decades.

"We believe the Adani Group has been able to operate a large, flagrant fraud in broad daylight in large part because investors, journalists, citizens and even politicians have been afraid to speak out for fear of reprisal," the report said.

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Report lists 88 questions for Adani Group

Adani made a vast fortune mining coal as energy hungry India grew swiftly after its economy was liberalised in the 1990s. 

Hindenburg's report said key listed Adani companies had "substantial debt" which has put the entire group on a "precarious financial footing" and asserted that shares in seven Adani listed companies have an 85 percent downside on a fundamental basis due to what it called "sky-high valuations".

Shares in Adani Transmission fell 9 percent, Adani Ports And Special Economic Zone slipped 6.3 percent and Adani Enterprises ended down 1.5 percent. Collectively, the seven listed group companies lost $10.73 billion in market capitalisation.

Hindenburg Research said its report followed a two-year investigation. It alleged the Adani Group had engaged in stock price manipulation and accounting fraud, among other abuses. 

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Hindenburg's report said five of seven key listed Adani companies have reported current ratios — a measure of liquid assets minus near-term liabilities — below 1. 

This, the short-seller said, suggested "a heightened short-term liquidity risk".

Adani Group's total gross debt in the financial year ended March 31, 2022, rose 40 percent to 2.2 trillion rupees.

Hindenburg said its report listed 88 questions it invited the company to answer.

Hindenburg is well-known for short-selling. That involves borrowing a stock one expects to lose value and selling it at its current market price with the plan to buy the same number of shares back later at a lower price.