Adani Replies with 413-Page Report; Hindenburg Says Fraud Cannot Be Camouflaged with Patriotism
Moneylife Digital Team 30 January 2023
The Adani group on Sunday responded to the Hindenburg Research report at length in an over 400-page response (actual response is 54 pages, while the rest comprises annexures) raises questions against the ulterior motives and modus operandi of the US-based research firm. In response, Hindenburg says  it believes that "fraud is a fraud, even when it is perpetrated by one of the wealthiest individuals in the world." Meanwhile, Adani group had a mixed day on the stock market, with its flagship Adani Enterprises Ltd recovering from last week's loss. However, five out of nine Adani group companies hit lower circuits during today's trading. Except Adani Enterprises, Ambuja Cements Ltd and ACC Ltd, all other group companies ended the day in the red.
The detailed response from Adani group covered its governance standards, credentials, creditworthiness, best practices, transparent conduct, financial and operational performance and excellence. It says, "This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India. While we are under no obligation whatsoever to respond to these baseless allegations made in the report, in the spirit of good governance, and transparency to our stakeholders and to avoid false market, we provide our responses to the report as also the 88 questions raised in the report."
Hindenburg, however, calls this reply from the Adani group as an "attempt to conflate its meteoric rise and the wealth of its chairman, Gautam Adani, with the success of India itself."
"We disagree. To be clear, we believe India is a vibrant democracy and an emerging superpower with an exciting future. We also believe India's future is being held back by the Adani group, which has draped itself in the Indian flag while systematically looting the nation," it says.
Calling the report "neither independent nor objective nor well researched," the Adani group says, "The truth of the matter is that Hindenburg is an unethical short seller. A short seller in the securities market books gains from the subsequent reduction in prices of shares. Hindenburg took 'short positions' and then, to effect a downward spiral of share price and make a wrongful gain, Hindenburg published a document to manipulate and depress the price of stock, and create a false market. The allegations and insinuations, which were presented as fact, spread like fire, wiping off a large amount of investor wealth and netting a profit for Hindenburg. The net result is that public investors lose and Hindenburg makes a windfall gain."
According to Hindenburg, in terms of substance, Adani's ‘413 page' response only included about 30 pages focused on issues related to its report. "The remainder of the response consisted of 330 pages of court records, along with 53 pages of high-level financials, general information, and details on irrelevant corporate initiatives, such as how it encourages female entrepreneurship and the production of safe vegetables."
"Our report asked 88 specific questions of the Adani Group. In its response, Adani failed to specifically answer 62 of them. Instead, it mainly grouped questions together in categories and provided generalized deflections. In other instances, Adani simply pointed to its own filings and declared the questions or relevant matters settled, again failing to substantively address the issues raised. Of the few questions it did answer, its responses largely confirmed our findings, as we detail," it added.
However, Adani group says, of the 88 questions posed by Hindenburg, it is pertinent to note that 68 refer to the matters that have already been duly disclosed by its group companies in their respective annual reports, offering memorandums, financial statements and stock exchange disclosures from time to time. "Sixteen out of 20 questions are pertaining to public shareholders and their sources of funds, while the balance four are simply baseless allegations."
"Needless to say that Hindenburg has created these questions to divert the attention of its target audience while managing its short trades to benefit at the cost of investors. The report claims to have undertaken a 'two-year investigation' and 'uncover evidence', but comprises nothing other than selective and incomplete extracts of disclosed information which has been in the public domain for years.
"We take serious objection to Hindenburg that chose to mislead the investors, watchdogs and policy makers at a time when Adani group has launched country's largest follow-on public offering (FPO). Adani group is deeply committed to its stakeholders, and it is thankful to them for standing with us over the past 30 years. Shockingly, Hindenburg Research's attack on the trust of Adani group's stakeholders undermines its commitment for the 'growth with goodness'," Adani group says.
According to Adani, the Hindenburg report "attempts to highlight allegations which have since been judicially determined to be false, narrates as fact what is attributed to hearsay, rumours and gossip spread by unnamed sources such as 'a former trader' or 'touts' of a 'close relationship', questions the independence of the judicial processes and regulators in the nation, and selectively extracts statements devoid of their context and with no understanding of Indian law or industry practice."
Hindenburg, however, refutes these allegations. "Adani also claimed we have committed a 'flagrant breach of applicable securities and foreign exchange laws'. Despite Adani's failure to identify any such laws, this is another serious accusation that we categorically deny," it says.
In its statement, the Adani group says its portfolio companies have demonstrated successful syndication of the banking transactions, resulting in de-risking of the banks in volatile markets. "Case in point being Holcim's Indian cement business acquisition with international banks, and Navi Mumbai Airport and Kutch Copper refinery with domestic banks Adani group companies also have a very strong audit process in order to prevent any deviations from the regulatory obligations and highest legal standards."
According to the statement, Adani portfolio companies have successfully and repeatedly executed an industry-beating expansion plan over the past decade. "While doing so, the companies have consistently de-levered with portfolio net debt to EBITDA ratio coming down from 7.6 times to 3.2 times, earnings before interest, taxes, depreciation, and amortization (EBITDA) has grown 22% compounded annual growth rate (CAGR) in the last nine years and debt has only grown by 11% CAGR during the same period."
"Equity injection in the Adani portfolio has raised US$16 billion equity under a systematic capital management plan for all the portfolio companies over the last three years as a combination of primary, secondary and committed equity from marquee investors like TotalEnergies, IHC, QIA, and Warburg Pincus," it added.
The US-based firm, however, says, the Adani group mainly grouped questions together in categories and provided generalised deflections. "In other instances, Adani simply pointed to its own filings and declared the questions or relevant matters settled, again failing to substantively address the issues raised. Of the few questions it did answer, its responses largely confirmed our findings..."
In its report, Hindenburg alleged that offshore shell entities directed by or associated with Vinod Adani, the older brother of chairman Gautam Adani, have been used for stock parking or stock manipulation or engineering Adani's accounting. These entities included 38 entities in Mauritius, along with others in the UAE, Cyprus, Singapore and various Caribbean islands.
According to Adani group, all transactions entered into by it with entities who qualify as 'related parties' under Indian laws and accounting standards have been duly disclosed. "Further, these have been carried out on arm's length terms in accordance with applicable laws. Further, these are also disclosed by us, are publicly available to all regulators and our stakeholders, and have been duly verified and audited by independent third parties who are competent and have the required expertise in this respect," it added.
However, Hindenburg says, in its response, Adani did not seem to dispute the existence of these transactions and made no effort to explain their obvious irregularities. Instead, it says, "Adani bizarrely argued that Vinod Adani is not a related party to the Adani group, and that there are no disclosable conflicts relating to the transactions that have collectively moved billions of US dollars through Adani group entities, largely through offshore shell entities."
While maintaining that the focus of the Adani portfolio and the Adani verticals is to contribute to nation-building and take India to the world, the Adani group says, "We will exercise our rights to pursue remedies to safeguard our stakeholders before all appropriate authorities and we reserve our rights to respond further to any of the allegations or contents of the Hindenburg report or to supplement this statement."
On the other hand, Hindenburg reiterates, "Adani's response largely confirmed our findings and ignored our key questions."
Adani Enterprises, the highest gainer among Adani group companies, ended Monday 4.21% higher at Rs2,878.50.85 on the BSE, while the 30-share Sensex closed the day 169 points up at 59500.41 points.

Ambuja Cements and ACC closed the day at 1.65% and 1.10%, up at Rs387.45 and Rs1,904.70, respectively.

Adani Ports and Special Economic Zone Ltd closed flat at Rs596.85.90, while Adani Transmission Ltd, which hit a lower circuit (20%) in the morning session, ended 14.91% down at Rs1,710.10. Adani Transmission hit its 52-week low of Rs1,617.80 today.

Adani Power Ltd, Adani Green Energy Ltd, Adani Total Gas Ltd and Adani Wilmar Ltd hit their lower circuit and ended the day at Rs235.65, Rs1,187.70 (52-week low), Rs2,347.65 and Rs491.45, respectively.

1 year ago
It's all accounting jargon,not understood by we common ppl. But shares prise tumbling of Adani Group Co.' is a testimony that all's not well.
1 year ago
any sane person can understand that without insider trading with a 74 percent with the promotor share prices are manipulated to get more loans it is like hatsad mehata siruation anwsers are like that
1 year ago
USA shd mind their own business.They have far severe problems than India and it is only getting started .in New York frozen rate are being sold in malls as food.The food crisis is real in USA.Bill gates wants everyone in USA to eat GMO food!Inflation is skyrocketing and only worsening.

This is not to defend Adani but tell USA-mind yr own business and donot interfere in India.
Replied to suketu comment 1 year ago
Its not about anyone in US caring about adani group. Its an exposure to potential fraud. Shareholder have every right to be made aware of any such scams. Look at what happened to investors in Kingfisher & other such businesses where the Promoter managed to loot the country & escape
Replied to aaron_nore comment 1 year ago
this is a well planned attack and the attack is on India for sure via Adani.It is not out of the blue.its well planned attack.But it wl fail.Wait for next 3 months developments worldwide.
Sanjeev B
Replied to suketu comment 1 year ago
Don't mix up Adani with India. Calling out Adani's house of cards is not equal to criticizing India.
Sanjeev B
1 year ago
What is the Moneylife Team's opinion on this? Is all this true, and how will it play out in the equities and banking world? Genuinely looking forward to your opinion on this - as the big Indian media houses are too embarrassing to trust.
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