On 23 May 2014, India’s newly elected Prime Minister Narendra Modi bid farewell to his home state Gujarat after serving as a chief minister for more than 12 years. Mr. Modi boarded a jet at Ahmedabad airport for New Delhi, where he was due to be sworn in as a Prime Minister of India.
A flight which otherwise would have been regarded as an expected journey for a newly elected PM drew attention due to the name of the owner of the aircraft, Mr. Gautam Adani. The insignia of Adani group was clearly visible on the aircraft. This journey marked the public display of Mr. Modi’s friendship with Mr. Adani, which eventually led to the publication of Hindenburg’s toxic report about Adani Group’s affairs.
Interestingly, the accusations levelled against the Adani group by Hindenburg, an investment research firm with a focus on activist short-selling, are not new. The accusations of wrongdoing by Adani group with the backing of Modi government in fact first surfaced in the Indian parliament when they were notably raised by Rahul Gandhi, the leader of the opposition party, Congress. The maxim of Rahul Gandhi’s 2019 election campaign was “Chowkidar Chor Hai” meaning the watchman is a thief, referring to Mr. Modi’s pompous analogy declaring himself a watchman who is safeguarding Indian interests.
BJP is by far the richest party in India with a 70% share of national political party assets.
Amid the furore of virulent Hindu nationalism, Indian voters didn’t pay heed to the serious allegations levelled against Modi by Mr. Gandhi. More importantly the accusations were completely ignored by the Indian media, resulting a landslide victory for Mr. Modi and his second term in the highest office. Riding on the tidal wave of popularity, PM Modi strengthened his grip on the government and those who were close to him started surpassing the state’s regulatory framework.
Gautam Adani was on the top of the list of Modi’s favourites and his Adani group of companies became a leading monopoly in key sectors of Indian economy. Renewable energy, utilities, aviation, transport, media, food and defense & aerospace are some of the lucrative sectors where contracts were awarded either solely to Adani group or were given major share in the industry through government contracts. Gautam Adani on a personal level amassed a net worth of roughly $140 billion, adding over $100 billion in past three years only. The graph below shows the phenomenal growth of Adani’s net worth between the years 2019 & 2022 until the Hindenburg report was published in January 2023.
Similarly, the revenue of Adani Group doubled under the premiership of Narendra Modi.
Source: Financial Times
Gautam Adani was on the top of the list of Modi’s favourites and his Adani group of companies became a leading monopoly in key sectors of Indian economy.
While the Adani group was increasing its market cap with phenomenal speed the regulatory framework of the company was on a slippery slope to say the least. The flagship company of Adani Group, registered as Adani Enterprises declared revenue of more than INR 70,000 crore roughly equivalent to whopping $7.9 billion USD, as per the annual accounts of the company. A corporation of this scale was audited by a firm of chartered accountants registered as Shah Dhandaria & Co. with only 4 partners & 11 members of staff. The audit partner who signed the audit report of Adani Enterprises, Shubham Rohtagi is only 28 years old. According to the Hindenburg report, Mr. Rohtagi first signed the audit report of Adani Enterprises in 2018 when he was only 23. The firm operates from a small, rented office in the city of Ahmedabad. This raises serious questions not only about the affairs of Adani group but more importantly about the regulatory framework in Indian institutes, in this case Indian Institute of Chartered Accountants, who turned a blind eye on this blatant violation of professional standards.
Source: Author
On its website, Hindenburg introduces the report as “Today we reveal the findings of our 2-year investigation, presenting evidence that the INR 17.8 trillion (U.S. $218 billion) Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades” The findings have far-reaching consequences beyond Indian borders.
Western countries in their quest of downsizing Chinese share in global trade were looking at India as alternative partner which will not only satiate the trading needs but the influx of wealth will enable India to become a regional policeman.
The top 20 shareholders in Adani Enterprises include some of the biggest names on Wall Street.
Adani’s businesses used a web of shell entities based in Mauritius to manipulate the stock price of Adani Group’s listed companies and conceal the scale of the family’s ownership of them. Adani bought six airports in 2019 despite no experience in the sector, claiming to build world’s largest green hydrogen ecosystem. Taking advantage of his friendly ties with the highest echelons of Indian government officials, Adani’s companies has taken substantial debts, including pledging shares for their inflated stock for loans. Eight family members of Adani family hold key positions in the group which effectively makes it a family run corporation. The accumulation of decision-making power in one group or family is a violation of best corporate practices.
While Gautam Adani himself serves as Chairman of the group, Rajesh Adani, a brother of Gautam Adani serves as Managing Director of the group; Rajesh was arrested twice over allegations of tax fraud & forgery, and the Directorate of Revenue Intelligence India (DRI) accused Rajesh of playing a central role in diamond trading import/export scheme in 2004-05 using offshore shell entities. Samir Vora, a brother in law of Adani, serves as executive director in the Australian arm of the Adani group, and was accused by the Directorate of Revenue Intelligence in the same diamond trading scam as Rajesh. Vinod Adani, Adani’s elder brother, is described by the media as an elusive figure and is the key in managing the network of offshore entities used to facilitate this fraud.
Hindenburg identified 38 Mauritius shell entities controlled by Vinod Adani or close associates. Some of the entities controlled by Vinod Adani are based in Cyprus, the UAE, Singapore, and several Caribbean Islands. Member of Indian parliament Mahua Moitra wrote letters to the Securities & Exchange Board of India (SEBI) demanding a probe into the role of Vinod Adani in offshore companies. Based on her letters, Hindenburg produced the below diagram of suspected movements of cash.
Source: Hindenburg Research
The top 20 shareholders in Adani Enterprises include some of the biggest names on Wall Street. Vanguard owns 0.75% of the stock, while BlackRock Fund Advisors holds 0.57% and BlackRock Advisors (U.K.) Ltd has a 0.17% interest. Also included in the list is a UK based capital market company which invested 99% of its Indian Opportunities Fund funds in Adani group, worth almost $3 billion. Jo Johnson, brother of former UK premier Boris Johnson, was working as Capital Director for Elara. Jo resigned from Elara citing personal & professional reasons after the Hindenburg report was published. The fourth largest investor in Adani group is Life Insurance Corporation of India, representing a 4% shareholding - putting hard earned savings of common Indian citizen at risk. French oil & gas giant Total Energy bought 37% stakes in the locally listed Adani Green Energy, representing an investment of $3.1 billion. According to media reports, Total Energy’s due diligence exercise before making the deal was wholly inadequate. Total Energy issued a statement clarifying that the company’s investment in Adani group represents an insignificant portion of company’s overall investments. The list of top 20 shareholders in Adani group produced by the business data & analytics company FactSet are below,
After reviewing some of the allegations against the Adani group, two questions arise. Why has this brazen violation of rules & regulations gone unnoticed and more importantly, what comes next?
The answer to the first question is a simple lust for power combined with an agenda to consolidate political power, which requires immense resources to set and alter the national narrative. Gautam Adani has been bank rolling the Hindu supremacy Hindutva politics of Modi’s BJP and its affiliated armed group of thugs, the RSS, for long.
BJP is by far the richest party in India with a 70% share of national political party assets. According to a report published by Indian newspaper Business Standard on the total assets declared by BJP in FY 2019-20, the party owns assets worth an eyewatering sum of INR 4,847.78 crores, roughly equivalent to $500 million, representing a ridiculous 69.37% of funds declared by all national parties of India.
According to credit rating agency Moody’s Investors Service, the market rout will likely reduce the Adani Group’s ability to raise money for capital expenditure projects or to refinance debt over the next year or two.
The wave of populism as experienced in different parts of the world relies on an image of a macho man and in Modi, BJP found its own macho man. A huge image building campaign is making the rounds on mainstream national and regional media to portray Modi as a reincarnation of Ram, the most revered figure in the Hindu religion. Mr. Modi is referred to as ‘Vishwa Guru’ meaning global master by his admires in the media. Western powers turned a blind eye on serious human rights violations mainly directed towards the Indian minorities especially Muslims.
Hardly a month passes by when a Muslim is not brutally lynched to death by Hindutva mobs. Many human rights & political activists, including Hindus who oppose the brand of Hinduism introduced by BJP are languishing in jails with no prospects of being released in the near future.
The answer to the second question about the future of Adani group & more importantly, India as an attractive destination for foreign capital depends on the actions of the Indian state. For India to survive as a safe haven for foreign investment, a robust probe into the Adani saga is needed which at present seems unlikely under Modi’s watch.
According to credit rating agency Moody’s Investors Service, the market rout will likely reduce the Adani Group’s ability to raise money for capital expenditure projects or to refinance debt over the next year or two. Credit Suisse’s private bank halted margin loans on Adani bonds. $716.5 million are due to its creditors by Adani group in Q1 of 2023. Last month Adani was shaking hands with Israeli PM Benjamin Netanyahu in a landmark deal worth $1.2 billion to take over Haifa port, but that too failed to restore the confidence of shareholders.
Adani Enterprises has cancelled its much-vaunted US$2.5bn share offer pitched to international investors following a damning investigation. Initially UAE based investment firm IHC, with links to the Royal family came to rescue the Adani Group by offering to invest $400 million in an FPO, but that was too little too late.
This is not the first time a big group is crumbling under closer scrutiny, but what makes the case of Adani unique is its geopolitical implications. China is forecasting an emphatic bounce back after Covid, and Indian authorities need to get their acts together if they want to maintain India’s perch in the global economy.
