The Adani Group, one of India’s largest conglomerates, has been the subject of accusations made by short seller Hindenburg Research. The accusations include stock manipulation and accounting fraud, which Adani denies. Hindenburg has accused Adani of using shell companies, particularly three companies based in Mauritius, to control a significant portion of Adani’s stock. Adani has stated that the referenced entities are public shareholders and not related parties or promoters and that a public listed company has no control over who buys or sells its shares.
In addition to the accusations regarding the use of shell companies, Hindenburg has also accused individuals in the Adani Group of involvement in a diamond trading scheme and tax evasion. Adani has stated that these matters have been closed and dismissed in their favor, and have been disclosed to their stakeholders.
Hindenburg has also accused Adani of frequent changes in its CFOs, with five CFOs resigning in eight years. Adani has responded by stating that many of the former CFOs are still with the company and that the resignations were due to personal pursuits and larger roles within the organisation. Finally, Hindenburg has accused Adani of using its current auditing firm to manipulate its share price, a claim that Adani calls baseless, selective, and misinformed and is exploring legal action against Hindenburg.
Short selling, as demonstrated by Hindenburg, raises questions about ethics and morality, although it is not illegal. The Hindenburg report focuses on the Adani Group, which has a net worth of roughly 120 billion dollars and points to the appreciation of stock prices in Adani’s seven key listed companies as the main reason for this growth. However, Hindenburg also highlights the debt strategy of the Adani Group as a critical factor in their success. According to Hindenburg, 5 out of the 7 Adani companies have a current ratio of less than one, but Adani has responded that the growth of their EBITDA is 2x the growth of their debt over the last five years and their net debt to run rate EBITDA ratio has decreased over time.
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The allegations made against the Adani Group by Hindenburg Research raise questions about the sources of their wealth and the ethics of short selling. Adani has denied the allegations and is exploring legal action against Hindenburg. The current ratio of Adani’s seven key listed companies, as well as the pledged promoter shares, indicate that the risk with share pledging has reduced in the past three years.