Fraud claims wipe $48B off India's Adani Group stocks

Shares in the business empire of Asia's richest man Gautam Adani has nosedived, extending this week's losses to $48 billion, days after a US investment firm Hindenburg Research claimed it had committed "brazen" corporate fraud.

Adani, 60, began his week the world's third-richest person but has tumbled down the rankings to seventh on Forbes' billionaires tracker after a $22.6 billion hit to his fortune in Friday's trade.

His flagship Adani Enterprises plunged nearly 20 percent over the day's trade in Mumbai, briefly triggering an automatic trading halt, before recovering slightly to close 18.52 percent lower.

Five other group companies hit their own stock exchange circuit breakers, with shares in Adani Total Gas, Adani Green Energy and Adani Transmission falling 20 percent apiece.

"Obviously, this is panic-selling," JM Financials equity research chief Ashish Chaturmohta told the AFP news agency, adding that traders were creating fresh short-sell positions to protect earlier bullish bets on Adani stocks.

Hindenburg Research this week alleged in a report that Adani Group had used undisclosed related-party transactions and earnings manipulation to "maintain the appearance of financial health and solvency" of its listed business units.

The conglomerate said it was the victim of a "maliciously mischievous" reputational attack by Hindenburg just as it was preparing for a major fundraising round.

Legal chief Jatin Jalundhwala said Adani was exploring its punitive action against the research advisory in US and Indian courts.

Hindenburg responded that Adani had ducked the issues its research had raised and instead resorted to "bluster and threats".

"If Adani is serious, it should also file suit in the US," the firm said in a statement. "We have a long list of documents we would demand in a legal discovery process."

READ MORE: Hindenburg report on India's Adani Group 'highly credible': Bill Ackman

'Government leniency'

Shares in Adani business units have soared as much as 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.

Adani — who now has an estimated fortune of $96.6 billion — is considered a close supporter of India's right-wing Prime Minister Narendra Modi.

The report said a pattern of "government leniency towards the group" stretching back decades had left investors, journalists, citizens and politicians unwilling to challenge the group's conduct "for fear of reprisal".

"The signal is that because the Adanis are very close to the powers that be today, therefore nobody would challenge them," economist Arun Kumar told AFP.

"Those who earlier criticised Adani, those who tried to do some investigation, Adani's launched big (legal) cases against them, so they have scared off a lot of people," he added.

READ MORE: Asia’s richest man was shorted by a US research firm. Chaos ensued

'Unsubstantiated' allegations

Mumbai-based market analyst Arun Kejriwal said Hindenburg was looking to capitalise on its short position in Adani — which it announced with the release of its report — and described the allegations as "100 percent unsubstantiated".

"It is just a compilation of old news at a time when it hurts them the most," Kejriwal said. "The more scandalous they make it, the more damage it causes."

Hindenburg's report landed days before Adani's ambitious $2.5 billion follow-on public offer — India's biggest-ever — opened for bids on Friday, aimed at bolstering the business empire's balance sheet.

The initial take-up was dismal, with bids for only 0.01 percent of shares on offer on Friday. The offer closes on January 31.

Shares in Adani Enterprises fell to $33 each at their lowest point in the day, well below the FPO price band of $38-$40 per share.

"This is a classic case of panic selling. Selling is impacting the banking sector. At least 40 percent of the group's debt is exposed to Indian banks, so that exposure is what people are worried about in banks," said Neeraj Dewan, director at quantum securities in New Delhi. 

Hindenburg's report accused Adani Group of engaging in a "brazen stock manipulation and accounting fraud scheme over the course of decades".

It claimed Adani's elder brother Vinod managed "a vast labyrinth of offshore shell entities" in tax havens, including Mauritius, Cyprus and several Caribbean islands.

The Mumbai stock exchange's benchmark Sensex index closed 1.45 percent lower on Friday afternoon, primarily dragged down by the Adani rout.

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