BENGALURU (Reuters) – Research firm Hindenburg said it took short positions in India’s Adani Group, accusing the group of improper use of offshore tax havens and concerns about rising debt that eroded $11 billion from investors’ wealth on Wednesday.
The group, which is led by Gautam Adani, the world’s third-richest person according to Forbes, has dismissed the claims of US short sellers as unfounded, saying their timing damages its reputation ahead of a major stock offering.
The flagship company of the group, Adani Enterprises (ADEL.NS)On January 27, it will launch the country’s largest secondary public stock offering, aiming to raise $2.5 billion to fund capital spending and pay off some debt.
Hindenburg, better known by the acronym Nikola Corp. for the electric truck maker (NKLA.O) and Twitter, said it holds short positions in Adani Companies through US-traded notes and non-India derivatives instruments.
Its scathing research report questioned how the Adani Group uses offshore entities in offshore tax havens such as Mauritius and the Caribbean islands, adding that some offshore funds and shell companies linked to the Adani Group “surreptitiously” own shares in Adani-listed companies.
He also said that the main Adani-listed companies had “significant debts” which put the entire group on a “risky financial footing” and confirmed that shares in seven Adani-listed companies had a decline of 85% on a fundamental basis due to what it called “skylight”. High ratings.
Adani Group Chief Financial Officer Jugeshinder Singh said in a statement that the company was shocked by the report, calling it “a virulent mixture of selective misinformation and meaningless and unfounded allegations”.
“The group has always adhered to all laws,” the company said, without addressing specific allegations made by the Hindenburg.
She added, “The timing of the report’s publication clearly indicates a brazen and ill-intentioned intent to undermine the reputation of the Adani Group with the main objective of harming the upcoming public offering of Adani Enterprises.”
Share in Adani transfer (ADAI.NS) And fell 9%, the ports of Adani and the Special Economic Zone (APSE.NS) It fell 6.3 percent, and the shares of Al-Adani companies fell 1.5 percent. In total, the group’s seven listed companies lost $10.73 billion in market capitalization.
In the bond markets, US dollar-denominated bonds issued by Adani Green Energy (ADNA.NS) Tradeweb data showed a drop of nearly 15 cents to just under 80 cents on the dollar, while international bonds issued by Adani Ports, Special Economic Zone, Adani Transmission and Adani Electricity Mumbai saw similar declines.
The report coincided with major investors submitting bids to sell shares of Adani’s subsidiary on Wednesday, with the company citing the participation of Maybank Securities and the Abu Dhabi Investment Authority, among others.
Hindenburg said the research report was based on a two-year investigation that involved speaking with dozens of individuals, including former Adani Group executives as well as reviewing documents.
India’s capital markets regulator, the Securities and Exchange Board of India, did not immediately respond to a request for comment.
Adani has repeatedly dismissed debt concerns. “No one has raised our debt concerns. No investor has,” Singh told the media on Jan. 21.
The Hindenburg report said that five of seven major Adani-listed companies reported current ratios — a measure of liquid assets minus short-term liabilities — of less than 1. This, the short seller said, indicated “increased short-term liquidity risk.”
In the fiscal year ending 31st March 2022, the Adani Group’s total gross debt increased by 40% to Rs.2.2 trillion.
Refinitiv data shows that debt in the seven major Adani companies included in the Adani Group exceeds equity, with debt in Adani Green Energy Ltd (ADNA.NS) Exceeding equity by more than 2000%.
CreditSights, part of the Fitch Group, described the group last September as “over-indebted”. While the report later corrected some arithmetical errors, CreditSights said it was still concerned about the influence of the Adani Group.
Hindenburg also said it was concerned that a high proportion of the shares held by promoters or major shareholders in companies included in the Adani Group had been pledged for loans.
“Equity pledges are an inherently volatile source of lending collateral,” it said in the report. Founded by Nathan Anderson in 2017, the Hindenburg looks for “man-made disasters” in companies, such as accounting irregularities and mismanagement.
Last year, Adani Group bought ACC Cement Companies (ACC.NS) and Ambuja cement (ABUJ.NS) From Swiss Holcim Favorite For $10.5 billion. Days later, it pledged shares in the two companies, worth about $12.5 billion at the time, to banks in a non-disposition agreement that prevents them from offloading shares until lenders agree to pay the debt.
ACC and Ambuja stock fell more than 7% on Wednesday.
Additional reporting by Chris Thomas, Aditya Kalra and MaryMay Day; Additional reporting by Myung Kim. Editing by Edwina Gibbs, Louise Heavens and Kirsten Donovan
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