Can Adani ever overcome this Hindenburg disaster?
On 24 January 2023 – net worth of Gautam Adani was $120 billion (he was among the three richest), and that seemed just like a beginning – Adani had global expansion plans, at least in the projects of infrastructure.
Everything felt right – but suddenly an iceberg called Hindenburg materialized and the Adani ship collided with it. Problems then started, and today, the net worth of Adani is reduced to $35 billion. Shares of Adani Group took a big hit – 12 lakh crore market cap lost in 30 days. Some stocks fell down nearly 80% – as predicted by Hindenburg.
In 30 days, some Adani stocks did nothing but repeatedly hit the lower circuit day after day. As a result, Adani fell from 3rd richest to 33rd richest. All because of a research by Nathan Anderson and Hindenburg team.
The report claimed stock manipulation and accounting fraud. Several questions have been asked in the past 30 days. Is Hindenburg report an attack on India? Is it banned in America? Why Indian stock market is unaffected by Adani crash? Is there a role of SEBI in this fiasco? Can Adani make a comeback? Or has Hindenburg fatally wounded Adani?
Firstly, why is it that whenever some foreign organization is involved, it is deemed an attack on India? There is no time for such a childish argument. Lehman Brothers, WorldCom, Freddie Mac – these are names of a few fraud companies based in the US. But, when these were exposed, no one regarded this an insult or attack on America.
These fraud companies were mostly caught red handed by their regulator – Securities and Exchange Commission (SEC). Here, in India, after losing nearly $150 billion – people say all is well. But, is it all truly well?
- The Vinod Adani Connection – Handling of operations and many connections to Adani came in the limelight after Hindenburg report, like brother Vinod Adani. He does not hold an Indian citizenship or live here, has no connection to Adani group. However, Hindenburg had alleged that Vinod Adani controlled shell entities. Is it true?
- The FPO U-Turn and its aftermath – After the Hindenburg report, Adani’s FPO received mixed reactions. Gautam Adani withdrew the FPO as going ahead was not morally correct, he said. Now, SEBI is investigating how FPO was subscribed at the last minute and if there was something fishy. US billionaire investor Bill Ackman thinks Adani FPO could have been rigged.
- Expansion comes to an abrupt halt – It seemed for a few years Adani had in possession an unlimited credit cards – Adani bought a company every other day. But after Hindenburg report – deal to acquire DB Power fell through. It is now known how much debt ridden the company is.
- The Government Connection – What is the understanding between the Government and Adani? When mutual funds and retail investors were away from overpriced Adani shares, then why did LIC make a big investment on Adani? – this is public money. Now, a report shows that LIC suffered notional loss of Rs50,000 crores in 50 days due to Adani exposure. The question is not if their share is 1% or 5%, rather, why was LIC buying Adani stocks until Dec 2022?
- Foreign funds backing out – Indian banks may defend Adani group stocks but not global funds, like a Norway based 1.35 trillion wealth fund says it no longer has exposure left in Adani companies because of risks such as potential corruption, environmental damage and human rights abuses. This damages internationally credibility – how will Adani raise money if funds lose interest?
- International deals cancelled – Post Hindenburg, open and quick dealings will be difficult for Adani. So far, PM Modi went abroad and Adani got awarded a contract – this was also argued by Congress. Carmichael coal mine in Australia, Haifa Port deal in Israel and Container terminal at Colombo port! A big influential publication like Financial Times has pondered Govt. role in Adani securing deals. In fact, Bangladesh asked a deal revisit after Hindenburg report, and Adani Power now has to supply electricity at reduced rate.
- Manipulation – Recently, Wikipedia’s publication Signpost made claims that – fake accounts and undeclared paid editors tried to revise 9 articles on Adani family and businesses. These accounts were blocked. Signpost further added that it may be Adani group ‘almost certainly’ manipulating its entries on Wikipedia. Is it that bad a situation for Adani that he has to edit pages on Wikipedia? Although, Adani officially declined their role. Had the one involved used VPN some grace could be saved. (sarcasm intended)
But, seriously, Hindenburg shows how information can be used in information warfare – cyber snooping is a fact. Let’s admit we are careless about cyber security.
New information is now released on Adani on a daily basis – and questions are being raised in the parliament too. Some parts of Rahul Gandhi’s speech were expunged, but taunting has still not stopped. Media did not break the Hindenburg story but reported on it. Media reporting was attempted to be stopped, but the Supreme Court rejected plea to gag media from reporting. FIR against Hindenburg was also logged – its founder would be jailed if he were present in India.
If Hindenburg had attacked India, our stock market would have tumbled by a lot. But our market is stable because the country is much bigger than one Adani. But, questions still come up on our market regulator – were they unaware of Adani bubble? Even now, the market regulator and political class have not taken any major step – they may be hoping for it to be over! (slow claps) But, if more revelations are made then it will further put our system in shame.
Because to gain international investments, our systems must be in place and of global standard. Due to this, the honourable Supreme Court called for SEBI’s investor protector framework.
Areas SEBI must look into –
- Are all disclosures made properly?
- What are Adani’s other associate companies?
- What are his family members’ role and holdings?
- What is the link with Mauritius holding companies?
- Has investigation done for accounting malpractices?
Asking questions now is better for the long run to prevent scams and frauds with people’s money. Even today, Elon Musk – the richest in America – cannot dare to think of playing with the Securities and Exchange Commission. A common person feels safe to invest in America.
Stature of Adani has already been impacted by Hindenburg – 2 cement plants in Himachal were shut for a while in December. Because of high trucking rates, Adani demanded lower rates – consequently, the truckers went on strike. The issue has now been resolved after Hindenburg. The result is Adani’s willingness to listen to the demands increased. Total debt on Adani group is $24 billion – after doubling in last 3 years.
That is how expansion was possible – this is called debt fueled expansion. Latest expansion projects – 5g, green energy, etc. will take a hit.
Loan is given on collateral – like infrastructure assets – but after collapse of stock price, taking loans is more difficult. Overseas funding will be an uphill task, and domestically rate will be high. Shopping spree of Adani will halt as a result, and project completion will be hard.
Economist Swaminathan Aiyar said Hindenburg was a blessing in disguise for Gautam Adani – as he will work more diligently, check fiscal deficit. This seems to be a $100 billion lesson.
No doubt – Adani will be in the game as long as he has support from the top – as long as friends offer help. Adani’s secret strength is infrastructure assets – port, airport, power projects, etc. Hindenburg has not snatched any of that. Despite the performance at stock market, what is Adani Group doing?
Sri Lanka approved $442 million wind power project which Adani Group will construct and will start supplying electricity by 2025. Adani Group held a roadshow, met potential investors in Singapore, Hong Kong. The Group hopes to continue expanding – however Moody’s outlook on 4 Adani firms was changed to negative – as funding will be a lot harder.
Adani also wants to prove there is no shortage of money – as the group acquired Haifa port in Israel for $1,2 billion. They also hired communications advisor Kekst CNC. Alongside, Adani Group hired US legal firm Wachtell, Lipton, Rosen & Katz in battle against Hindenburg – this is the most expensive firm in America.
At the end, investors will watch out for leverage on Adani loans and return on Adani assets. This is the real testing situation – Adani Group has started to cut debt ad prepay loan to boost invest confidence. As Adani is going slow, other businesses will also get a chance to expand and to diversify. Besides, Adani has a chance to show that even after such a setback, they can bounce back strongly.
However, it is dependent on share price – if there is no further drop, and no newer revelations leading to new questions. At least 1 month later, we’ve known that Hindenburg research was right – short selling is not a crime, there is no case registered against them in America. This is no attack on India – this is time to learn and not feel insulted – because becoming global power invites global level questions.
[Images from different sources]
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