- Adani issued a 413-page rebuttal to the Hindenburg Report
- The short selling report in the US triggered a drop in Adani shares
- Al-Adani says he adheres to the laws, and the necessary disclosures
- Adani CFO is confident of the success of the $2.5 billion share sale
NEW DELHI (Reuters) – India’s Adani Group on Sunday issued a detailed response to a Hindenburg Research report that caused it to lose $48 billion in its shares, saying it complied with all local laws and made the necessary regulatory disclosures.
The conglomerate led by Indian billionaire Gautam Adani, Asia’s richest man, said last week’s Hindenburg report was intended to enable US short sellers to make a profit, without citing evidence.
For the 60-year-old Adani, the stock market crash was a dramatic setback for a school dropout who rose rapidly in recent years to become the third richest man in the world, before falling last week to rank seventh on the Forbes list of the rich.
The Adani Group’s response comes as a pioneering company, Adani Enterprises (ADEL.NS), goes ahead with $2.5 billion worth of stock sale. This was overshadowed by the Hindenburg Report, which cited concerns about debt levels and the use of tax havens.
“All transactions entered into by us with entities that qualify as ‘related parties’ under Indian laws and accounting standards have been duly disclosed by us,” Adani said in the 413-page response issued late Sunday.
“This is full of conflicts of interest and aims only to create a fake stock market to enable the Hindenburg, a recognized short seller, to make huge financial gains through illegal means at the expense of countless investors,” it added.
“Adani’s response largely confirmed our findings and ignored our key questions,” Hindenburg said on its website. It confirmed that it was short on the Adani Group through US-traded bonds and non-Indian traded derivatives.
Its report had questioned how the Adani Group used offshore entities in tax havens such as Mauritius and the Caribbean islands, adding that some offshore funds and shell companies “surreptitiously” own shares in Adani listed companies.
Adani said the research report made “misleading claims about outside entities” without any evidence whatsoever.
Hindenburg said it “found Adani’s lack of direct and transparent answers” about the allegations of using outside entities “obvious”.
On Thursday, Adani said it was considering taking action against the Hindenburg, which responded the same day by saying it welcomed the move.
The Hindenburg report also said five of seven major Adani-listed companies reported current ratios, a measure of liquid assets minus short-term liabilities, of less than 1 which it said indicated “increased short-term liquidity risk”.
It said the major Adani-listed companies had “significant debt” which put the entire group on a “precarious financial footing” and that shares in seven Adani-listed companies had a downside of 85% due to what it called “extremely high valuations”.
Adani’s response states that over the past decade, group companies have “consistently de-leveraged”.
Defending its practices of pledging the shares of promoters – or major shareholders – the Adani Group said raising equity financing as collateral was a common practice globally, and loans are made by large institutions and banks against the back of a comprehensive credit analysis.
The group added that there is a strong disclosure system in place in India, and underwriting positions of promoters across portfolio companies fell from more than 50% in March 2020 in some listed shares, to less than 20% in December 2022.
The Hindenburg report and its fallout are seen as one of the biggest career challenges facing the billionaire, whose business interests range from ports, airports, mining and energy to media and cement.
Al-Adani’s response included more than 350 pages of appendices that included extracts from annual reports, public disclosures and previous court rulings.
Adani said the Hindenburg sought answers to 88 questions in its report, but 65 of them related to matters disclosed by Adani’s portfolio companies in annual reports.
The remainder involved public contributors and third parties, some of which were “unsubstantiated allegations based on patterns of fictional facts,” Al-Adani said.
“Adani failed to answer precisely 62 out of 88 questions,” Hindenburg said.
The Hindenburg is best known for its electric pickup truck maker Nikola Korb (NKLA.O) and Twitter.
Adani also responded to Hindenburg’s allegations regarding the company’s auditors, saying, “All such auditors appointed by us have been duly approved and qualified by the relevant statutory bodies.”
Its response comes just hours before the India market opens, when the $2.5 billion in secondary shares will begin selling on the second day of IPOs. Friday’s plunge sent shares of Adani Enterprises below its issue price, raising doubts about its success.
In a separate statement on Sunday, Group Chief Financial Officer Adani Jugeshinder Singh said it was focused on selling the shares and was confident it would be successful. He also said that the main investors showed faith and continued to invest.
“We are confident that the FPO (follow-on public offering) will also be successful,” he said.
Additional reporting by Aditya Kalra, Aditi Shah, Jishree Upadhyay and Anirudh Saligrama in Bengaluru; Editing by Kevin Levy, Alexander Smith, and Muralikumar Anantharaman
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