The Adani Group said it's exploring legal action against U.S. investor Hindenburg Research after the short seller released a report alleging "brazen" market manipulation and accounting fraud by Asia's richest man's empire.
"We are evaluating the relevant provisions under U.S. and Indian laws for remedial and punitive action against Hindenburg Research," Jatin Jalundhwala, legal head for the Adani Group said in a statement.
The "maliciously mischievous, unresearched" report has adversely affected the company, shareholders and investors, said Jalundhwala. "The volatility in Indian stock markets created by the report is of great concern and has led to unwanted anguish for Indian citizens," the statement added.
Bonds and shares of Adani-related entities
Indian markets are shut Thursday for a holiday. The broadside from Hindenburg alleging wide-ranging corporate malfeasance comes at a critical time for Adani. The tycoon is seeking to raise his international profile and is aggressively branching into new businesses, including cement and media, in his power base of India, where he is seen to enjoy a close relationship with Prime Minister Narendra Modi.
New Allegations
While many of the allegations made by Hindenburg against Adani had already surfaced, including over-valuations and concentrated holdings by Mauritius-based investors in his companies, some details gleaned from the entire Mauritius registry have been made public for the first time, according to Brian Freitas, an Auckland-based analyst who publishes independent research on website Smartkarma.
"It will not only shine a light on the group, but also on corporate governance in India," said Freitas. But the report is unlikely to have "any big impact on the follow-on offer because the company would have ensured that there is sufficient demand for the book to be covered."
Hindenburg said it had taken a short position in Adani's companies through US-traded bonds and non-Indian-traded derivative instruments. Here's a quick rundown of some of their main allegations:
Identified 38 Mauritius shell entities controlled by Adani's brother, Vinod Adani, or his close associates plus entities controlled by him in other tax havens.
- The offshore shell network seems to be used for earnings manipulation.
- Adani Group has previously been the focus of four major government investigations relating to allegations of fraud.
Adani Enterprises and Adani Total Gas Ltd. appear to be audited by a tiny firm, with no current website, only four partners and 11 employees, and which has audited just one other listed firm.
- The auditor "hardly seems capable of complex audit work" when Adani Enterprises alone has 156 subsidiaries and many more joint ventures.
— Additional material from earlier article by Chris Kay, Abhishek Vishnoi and Ashutosh Joshi
