The Hindenburg effect

Gautam Adani has been a lucky man. Not fortunate because he was India and Asia's richest man and briefly, second-richest in the world. But because he’s escaped grave physical and mortal danger – not once but twice! On January 1, 1998, Adani and his associate, Shantilal Patel were abducted at gunpoint as they left Karnavati Club in Ahmedabad. The kidnappers were allegedly affiliated to don Dawood Ibrahim. Reportedly, a ransom of Rs 15 crore was demanded. While it’s unclear if the ransom was paid, the duo was let off the next day. Curiously, some years later, the abductors were also acquitted for lack of evidence. In 2008, Adani had another close shave with destiny. He was dining at the Taj Hotel in Mumbai on the ill-fated night of the 26/11 terror attack. If he had exited after paying the bill as was his original intention, he would have been caught in the attack. Instead, his decision to hang back for another round of meetings over a cup of coffee, saved him. As the terrorists held the iconic Taj Hotel hostage, the hotel staff escorted Adani to the kitchen, after which he spent the night in the basement and the hall before ultimately being rescued by commandos in the morning. Adani had Lady Luck shine on him on both occasions.

Almost 15 years later, Gautam Adani faces yet another challenge as the US-based short-seller, Hindenburg Research, rocked his business and his future. Hindenburg, aptly named after the German commercial passenger airship that caught fire in 1937 killing 36 people, jolted the Indian business magnate with its detailed report of multiple counts of alleged “brazen stock manipulation and accounting fraud”. Adani has refuted all the charges but the repercussions on its stock have been brutal.

Even terming it “a calculated attack on India” couldn’t stem the bloodbath at the stock markets, with Hindenburg commenting on the Adani Group’s rebuttal and stating that “fraud cannot be obfuscated by nationalism”. And astute shareholders agreed that no amount of nationalist fervour could contain the shadow cast on the conglomerate, and sold off their holdings accordingly. The Adani Group lost USD 117 billion market cap since the report was released on January 24. The erosion is one of the worst in corporate history, making Adani also the worst victim of Hindenburg Research’s many exposes. The aftermath prompted the cancellation of Adani Enterprises’ Rs 20,000 crore FPO (Follow on Public Offer) even after it was fully subscribed, and necessitated an address by the industrialist to investors.

The allegation of fraud thrust upon one of the wealthiest businessmen of India cannot be taken lightly. His rise in the last couple of decades has been meteoric, and if these allegations prove to be justified, his ultimate undoing would be equally brilliant. The timing of the report has also been called into question coming in the run-up to the much-awaited FPO. Interestingly, it also came on the heels of some rare but impactful media interviews given by Adani in December. Makes one wonder, was a crisis already in the works?

Meanwhile, shockwaves continue for the Adani Group. Credit Suisse has stopped accepting Adani bonds as collateral, S&P Dow Jones will remove shares of Adani Enterprises from sustainability indices, the National Stock Exchange (NSE) has put an additional surveillance measure (ASM) on the shares of Adani Enterprises, Adani Ports, and Ambuja Cements, and also placed Adani Ports and Special Economic Zone Limited and Ambuja Cements under futures and options (F&O) ban.

Which brings us to markets regulator, the Securities and Exchange Board of India (SEBI) and the crucial role it’s supposed to play as per its Preamble “…to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith…”. SEBI, has in the past, probed several companies including the Sahara Group for alleged fraud. It is yet to initiate an investigation into the revelations made by the Hindenburg report. News reports however, suggest that some Adani Group companies have been under the SEBI radar. In July 2021, MoS Finance Pankaj Chaudhary had responded to a question in the Lok Sabha and said that both the SEBI and the Directorate of Revenue Intelligence (DRI) were investigating certain Adani Group companies, though exact details were not disclosed. He also informed the lower house of the Parliament that in 2016, SEBI had frozen 3 out of 6 Mauritius-based companies that were found to have invested in Adani Group companies.

It's imperative that SEBI now look into the various claims of the Hindenburg report and take action if mandatory disclosures have not been made by the Adani Group. Hindenburg also alleges that there are 38 Mauritius-based shell companies controlled by Adani’s elder brother, Vinod, or close aides, which in spite of no signs of actual operations move money in and out of Adani firms, again without making requisite disclosures. Technically, shell companies are not illegal per se unless used for money laundering or other fraudulent activities.

It’s easy to get lost in the quagmire of regulations and their various loopholes. By not acting on the controversy, citizens’ trust in government bodies may also totter. Therefore, there is an urgent need for a dispassionate, unbiased inquiry to put shareholders’ minds at rest as well as provide the clean chit that the Adani Group so desperately needs. If there is even a hint of malpractice, then appropriate reparations would also be needed. Adani’s prolific upward curve has faced an insurmountable obstacle. Some experts and legal counsels believe that there is an absence of wrongdoing. The group may get away with only reduction of wealth but it’s the loss of reputation that would cost it more dearly. After escaping the 2008 terror attacks, Gautam Adani had said, “I saw death at a distance of just 15 feet away”. Indeed, he has faced many tribulations in life; he would not want the Hindenburg report to be his epitaph.

The writer is an author and media entrepreneur. Views expressed are personal