Adani Group stocks witness high volatility amidst war of words between the company and Hindenburg Research

• All the nine Adani Group stocks experienced high volatility in trade on Monday as the tussle between the company and New York-based Hindenburg Research continued to escalate.
  
• The Adani Group response over the weekend primarily termed Hindenburg Research’s report as “unsubstantiated allegations and misleading narrative”.
  
• The war of words between Adani Group and Hindenburg Research escalated on Monday, with the short seller saying, “Fraud cannot be obfuscated by nationalism or a bloated response that ignores every key allegation we raised.”
  

All the nine Adani Group stocks experienced high volatility in trade on Monday as the war of words between the group and New York-based short seller Hindenburg Research continued. The combined market capitalisation of the nine Adani Group companies has fallen by ₹5.57 lakh crore since January 24, when the report came out. On Monday, five out of the nine Adani Group companies’ shares closed in the red.

Adani Enterprises’ shares closed up by 4.76% on Monday. However, at ₹2,893, the company’s stock price is still 7% below the lower limit of its follow-on public offer (FPO) price band of ₹3,112. By the end of Friday, which was the first day of the FPO, it was subscribed by only 1%.

The Adani Group response over the weekend primarily termed Hindenburg Research’s report as “unsubstantiated allegations and misleading narrative”.

“Of the 88 questions posed by Hindenburg, it is pertinent to note that 68 refers to the matters that have already been duly disclosed by Adani Group companies in their respective annual reports,” the Adani Group said in its statement. It also said that 16 questions pertain to public shareholders and their sources of funds, whilst the remaining four are “baseless allegations”.

Early on Monday morning, Hindenburg Research hit back by putting out a response, saying, “Our report alleged that Adani Group has engaged in billions of US dollars in suspicious dealings with its chairman’s brother, Vinod Adani, and his labyrinth of offshore shell entities.”

In its response, Adani Group said, “We are neither aware nor required to be aware of their ‘source of funds’.”

In its reaction, Hindenburg Research also outlined two examples of conflict of interest – the first one of a $253 million loan from a Mauritius entity where Vinod Adani is a director, and the second one of a $692.5 million investment from another Mauritius entity that is controlled by the head of the Adani Group’s private family investment office.

All in all, the firm says it has identified 38 shell entities based out of Mauritius, controlled by Vinod Adani or other close associates of the Adani Group, in an investigation it conducted over the course of two years.


Source: NSE, current market price as at 3:30 p.m., January 30, 2023

Since January 24, the group’s combined market capitalization has fallen by ₹5.57 lakh crore, with a fall of ₹3.22 lakh crore on Friday alone.

Adani-Hindenburg timeline – where it all began

The Adani-Hindenburg tussle began on January 24, with the New York-based short seller kicking it off with a report stating how Gautam Adani, then the third richest man in the world, is pulling off the “largest con in corporate history”.

Key amongst the allegations of the Hindenburg Research report were stock manipulation, accounting fraud, and substantial debt, among others.

“Our report outlined numerous irregularities and connections between suspected offshore stock parking entities and Adani promoters, raising key questions about whether promoter holdings were fully disclosed. Adani’s response claimed it simply doesn’t know who its largest public holders are,” Hindenburg said.

Earlier in August 2022, CreditSights, a Fitch Group company, came out with a report that said that the Adani Group is “deeply over-leveraged”. The research firm subsequently toned down its comments, but maintained its key takeaway regarding the company’s debt.

From ‘stock manipulation’ to ‘attack on India’ – the constant back and forth between Adani and Hindenburg

While the Hindenburg Research report kicked off the David vs Goliath fight, the Adani Group came out with a statement the next day, calling the report “a malicious combination of selective information and stale, baseless and discredited allegations”.

“The timing of the report’s publication clearly betrays a brazen, mala fide intention to undermine the Adani Group’s reputation with the principal objective of damaging the upcoming follow-on public offering from Adani Enterprises, the biggest FPO ever in India,” said Jugeshinder Singh, chief financial officer, Adani Group, on January 25.

Reacting to the statement, Hindenburg hit back and said it would welcome any legal action by the Adani Group.

“We fully stand by our report and believe any legal action taken against us would be meritless. If Adani is serious, it should also file a suit in the US where we operate. We have a long list of documents we would demand in a legal discovery process,” the New York-based investment research firm said in a statement.

The Adani Group had initially responded with a presentation outlining its auditors and dismissing the allegations of Hindenburg Research. However, it subsequently posted a 413-page response disclosing its financials and responding to the allegations of the research firm.

The company also said the themes of the Hindenburg report included “manipulative presentation of matters already in the public domain”, and a “contempt for Indian institutions”.

However, Hindenburg was quick to respond, saying “Fraud cannot be obfuscated by nationalism or a bloated response that ignores every key allegation we raised.”

Adani Group doesn’t know the quantum of short selling yet

In an interview with the Economic Times, Adani Group CFO Jugeshinder Singh said despite the bear attack, the company is going ahead with its FPO as planned. Singh also said that the company doesn’t yet know the instruments which are being used to short the company’s stocks, or the quantum of the short selling due to market delays.

However, Singh did say that the company’s institutional investors are not selling their shares in the company. “They are backing us fully based on our meetings and interactions with them. Our anchor book has been oversubscribed. So, we are confident of covering the gap that the retail segment will create,” Singh said.

Adani Enterprises FPO’s retail portion is worth ₹7,000 crore, and so far, it has been subscribed 2% as of 12 pm, while the overall subscription across all the categories stands at 1%. With the FPO set to close tomorrow, on January 31, it will be interesting to see the subscription momentum today.

$ADANIENT.NSE Response to $HindenburgReport A 400+ Pages Response, Which Indeed Clearify all Doubts.Tomorrow's Focus Should be on Most Beaten Areas in the last Two Working Days.Banks Should be on Focus.A Recovery Expecting as Mentioned in PMA. Yesterday's Tweet.🙏👍

— (@AyushGarg1997) January 29, 2023

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