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Adani's Empire Under Fire: Billionaire's Business Battle with Hindenburg

Adani Group is facing its worst crisis due to the Hindenburg report.

1 February 2023

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Jayashri Ghorpade

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  • Billionaire Gautam Adani, returned from his Davos trip with high hopes for India's growth and ambition.


  • Adani's conglomerate announces public offering to pay off debt, changing game.


  • Last Tuesday, a small American firm, Hindenburg Research, published a report that was highly critical of the Adani Group.


  • Adani's business empire suffered a loss of $70 billion in stock market value by Monday.

Gautam Adani, India's richest man, returned from Davos with high hopes for India's growth and a mild addiction to ChatGPT. However, his conglomerate's plans to go public and raise billions to pay off debt changed the game. A small American firm, Hindenburg Research, published a highly critical report of the Adani Group, accusing them of stock manipulation and accounting fraud. The report was denounced by Adani as "baseless" but the market reaction was severe, with the Adani's business empire losing $70 billion in stock market value. "Sentiments are playing against Adani group," said Swapnil Shah, director of research at brokerage Stoxbox.


College dropout to Asia’s richest

Adani, a 60-year-old college dropout, has been compared to business tycoons like John D. Rockefeller and Cornelius Vanderbilt who built vast monopoly businesses in the 1800s. Most of his wealth is invested in the Adani Group, which he founded over 30 years ago. Despite losing nearly $40 billion in the past week, he remains Asia's richest man with $82 billion, surpassing fellow Indian entrepreneur Mukesh Ambani. Last year, Adani even surpassed Jeff Bezos as the world's second-richest person, becoming the first Asian to rank so highly on the Bloomberg list. However, in the past week, he has dropped from fourth to 11th place.

 

Growing with India

Adani's fortune rose with India's economy after 1990s reforms. In 1994, Adani Enterprises Ltd became the first of his companies to go public on the Mumbai stock exchange. He also runs Mundra Port, India's largest commercial port; Adani's "crown jewel", and uses AEL as an incubator for his businesses. Adani is a major coal producer and operates the controversial Carmichael Coal Mine in Australia, facing opposition from climate activists. But is also investing in clean energy to align with India's long-term climate goals.. He has expanded into various sectors, including media, data centers, cement, and airports, and is a close ally of Prime Minister Modi , leading investors to bet on his ability to grow his businesses in Modi's prioritized development sectors. Critics question his rise, claiming it is based on crony capitalism and wonder if his empire could survive if there is a change in government.

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The man that hopes for a stock market crash

Adani Group, employing over 23,000, is facing its worst crisis due to the Hindenburg report.

The firm, named after the 1937 airship disaster, takes bold bets against corporations it deems overvalued or fraudulent. Founded in 2017 by Nathan Anderson, it gained a reputation as a financial sleuth in 2020 when it accused electric vehicle maker Nikola of fraud. Nikola's founder was later convicted.

Hindenburg Research shorted Adani's firms through US bonds and derivatives, betting the stock prices will fall. The firm criticized Adani's "sky-high valuations" and "substantial debt," putting the group in a precarious financial situation. The report concluded with 88 questions, including inquiries about Adani's offshore entities and its complex corporate structure.


Adani Group and Hindenburg have been engaged in a heated dispute since the release of Hindenburg's report. Adani threatened legal action and released a 400-page rebuttal calling the allegations "baseless and discredited" and claiming Hindenburg had a hidden motive. Adani viewed the report as an "attack" on India, its economy, and investors.


Hindenburg responded to Adani’s rebuttal by saying “fraud cannot be obfuscated by nationalism.”

“Adani Group has attempted to conflate its meteoric rise and the wealth of its Chairman, Gautam Adani, with the success of India itself,” it said in a post on Twitter on Sunday.

India's stock market regulator has not commented on the allegations against Adani, but LIC, India's largest insurer with $4 billion invested in the group, plans to hold talks with Adani. LIC's Managing Director, Raj Kumar, stated that as a large investor, they have the right to ask relevant questions and will engage with Adani to clarify the situation.


What happens next?

Hindenburg's criticism of Adani came as the company aimed to raise $2.5 billion through a public share offering in Adani Enterprises, India's largest such offering by a listed company. The offer was fully subscribed, offering relief after recent stock market declines. Analysts have expressed concern over Adani's rapid expansion fueled by a $30 billion borrowing binge, making it one of India's most debt-ridden businesses. Last year, CreditSights labeled Adani "Deeply Overleveraged," but Adani claimed its leverage ratios were in line with industry standards. Despite the current crisis, analysts believe Adani will survive, with Rajat Sharma of Sana Securities stating that Adani is "not going anywhere" and is well-established in important businesses.

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