Hindenburg shorts India’s Adani citing debt, accounting concerns | Business and Economy News

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Hindenburg Research said it had short positions in India’s Adani Group, accusing the conglomerate of improper use of offshore tax havens and raising concerns over high debt that eroded $11 billion in investor wealth on Wednesday.

The group, led by Gautam Adani, the third richest person in the world according to Forbes magazine, dismissed the US short seller’s claims as unfounded and said it was time to damage his reputation ahead of a major stock offering. .

The group’s flagship product, Adani Enterprises, will launch the country’s largest public secondary equity offering on January 27, aiming to raise $2.5 billion to fund capital expenditures and pay off a portion of debt. unload.

Hindenburg, known for shorting electric truck maker Nikola Corp — whose founder was later found guilty of securities fraud — and Twitter, said it has short positions in Adani companies through US-traded bonds and non-Indian derivatives.

The damning investigative report questioned how the Adani Group has used offshore entities in offshore tax havens such as Mauritius and the Caribbean islands, adding that certain offshore funds and shell companies linked to the Adani Group “covertly” own shares in publicly traded Adani companies. businesses.

It also said that the main Adani listed companies had “substantial debt”, which had put the entire group in a “precarious financial position”, and claimed that shares in seven Adani listed companies have an 85 percent fundamental downturn due to what it called “skyrocketing valuations”.

Adani Group’s chief financial officer, Jugeshinder Singh, said in a statement that the company was shocked by the report, calling it a “malicious combination of selective misinformation and outdated, unsubstantiated and discredited allegations”.

“The Group has always complied with all laws,” the company said, without commenting on any specific allegations from Hindenburg.

“The timing of the publication of the report clearly betrays a brazen, malicious intent to undermine the reputation of the Adani Group with the primary purpose of harming Adani Enterprises’ upcoming public offering,” it added.

Short sellers like Hindenburgh are billing themselves as watchdogs to protect investors from accounting and management misconduct, while the targeted companies say it’s a case of market manipulation. However, regulators have often resisted short sellers, Bloomberg News reported.

Share tank

Shares in Adani Transmission fell 9 percent, Adani Ports and Special Economic Zone fell 6.3 percent and Adani Enterprises finished 1.5 percent. Collectively, the seven publicly traded group companies lost $10.73 billion in market cap.

In bond markets, US dollar bonds issued by Adani Green Energy fell nearly 15 cents to just under 80 cents on the dollar, Tradeweb data showed, while international bonds issued by Adani Ports And Special Economic Zone, Adani Transmission and Adani Electricity Mumbai saw similar declines.

The report coincided with a bid for Adani’s secondary share sale by anchor investors on Wednesday, the company noted in a listing filing from the likes of Maybank Securities and Abu Dhabi Investment Authority.

The investigative report, Hindenburg said, was based on a two-year investigation that involved speaking with dozens of individuals, including former Adani Group executives, and a review of 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 worries. Singh told the media on January 21, “No one has raised our concerns about debt. No investor has that.

Hindenburg’s report says that five of the seven major publicly traded Adani companies have reported current ratios — a measure of liquid assets minus short-term liabilities — of less than one. This, the short-seller said, suggested “increased short-term liquidity risk”.

Adani Group’s total gross debt in the financial year ended March 31, 2022 increased by 40 percent to Rs 2.2 trillion ($26.9 billion).

Refinitiv data shows that debt at the Adani Group’s seven major publicly traded Adani companies exceeds equity, with debt at Adani Green Energy Ltd exceeding equity by more than 2,000 percent.

CreditSights, part of the Fitch Group, described the group as “overlevered” last September. While the report later corrected some calculation errors, CreditSights said it remained concerned about Adani Group’s influence.

Hindenburg also said he is concerned that much of the equity of promoters or major shareholders of listed companies of the Adani Group has been pledged for loans.

Equity pledges are an inherently unstable source of collateral.

Last year, the Adani Group bought cement firms ACC and Ambuja Cements from Swiss Holcim for $10.5 billion. Days later, it pledged shares in the two companies, about $12.5 billion at the time, to banks in a non-sale deal that prevents it from losing the shares until lenders agree the debts are paid.

Shares of ACC and Ambuja fell more than 7 percent each Wednesday.

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