My summarized version of the Hindenburg report published on the Adani group.

Disclaimer – this report does not give any buy or sell recommendation, please consult your financial advisor before taking any action. The content of this report is referred from the Hindenburg research report published on its official website. The writer of this article is not in any form responsible for the decisions taken by the reader. The writer of this article does not have any positions in any of the adani group stocks.

After going through the entire report on the Adani Group published on the official website of Hindenburg research , I have tried my best to summarize it in the simplest way possible. The research report claims that –

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HIGHLY OVERVALUED

As per the report the listed companies of the Adani group are highly overvalued and show a potential 85% downside purely on the basis of fundamentals. Massive debt, pledging of shares, 5 out 7 companies showing current ratios of less than 1. Adding over $100 billion in the past 3 years largely through stock price is not at all inclined with the growth in profits/fundamentals.

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SHADY CORPORATE GOVERNANCE

According to the findings by the research firm

Rajesh Adani (younger brother of Gautam Adani) has previously been accused many times for forgery and tax fraud ; serves as the Managing Director of Adani group

Samir Vora (brother in-law of Gautam Adani) was accused by the DRI of being a ringleader of the same diamond trading scam and of repeatedly making false statements to regulators. He was subsequently promoted to Executive Director of the critical Adani Australia division

Vinod Adani ( elder brother of Gautam Adani) through several close associates, manages a vast labyrinth of offshore shell entities.

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A WEB OF OFFSHORE SHELL COMPANIES

The report claims that While Gautam Adani Now Denies Vinod Adani’s Involvement In The Group Outside Of Being A Shareholder, In Reality He Operates A Vast Empire Of Shell Companies That Funnel Assets Through Adani Group Companies

They also found other entities in Cyprus, the UAE, Singapore and the Caribbean associated with Vinod Adani, comprising a vast empire of shells. Many of these entities later appear in suspect transactions, often funneling assets into or out of the Adani Group companies.

Amicorp formed at least 7 Adani promoter entities, at least 17 offshore shells and entities associated with Vinod Adani, and at least 3 Mauritius-based offshore shareholders of Adani stock. Amicorp played a key role in the 1MDB international fraud scandal that resulted in U.S. $4.5 billion being siphoned from Malaysian taxpayers.

The shell companies outside of India are accused of being managed by Vinod Adani and are suspected to transfer money into various private ltd companies of Adani group who later transfers the money to listed Adani companies. Similarly huge chunks of money has been transferred from listed Adani companies to various private and shell companies.

?BACKGROUNG OF THE OFFSHORE SHELL COMPANIES

Majority of these companies are accused to be owned my Gautam Adani’s relatives, family, friends. These companies don’t?even have a proper website of their own and have done most of their businesses with Adani group companies only. They have seen suspicious rise in their profits and inflow of money. In the books of listed adani group companies, only a few of these transactions are classified as related party transactions and no disclosure was provided for most of these transactions.

?HOW MONEY GOES IN AND OUT OF THE EMPIRE THROUGH RELATED PARTY TRANSACTIONS AND OFFSHORE ENTITIES??

The research report claims that –

Adani’s Key 7 Publicly Listed Entities Have 578 Subsidiaries And Engaged In 6,025 Disclosed Related-Party Transactions In FY 2022 Alone.

“Use of complicated group structures and complex related-party transactions increase the concern on siphoning of funds, money laundering, round tripping etc, while such structures and transactions happen at a cross-country level, the lack of free information flow hinders monitoring and enforcement as well” ?–?Former SEBI Chairman, Ajay Tyagi, speaking about issues affecting the Indian stock market.

Suspicious Money In – Adani Group Has Funded Some Of Its Listed Companies With Massive Amounts Of Money From Shell Entities

Vinod Adani, Gautam’s Brother, Runs An Intricate Network Of Offshore Entities That Extensively Deals With Adani Group

He Has A History Of Fraud Allegations From Regulators Involving His Dealings With Adani Companies

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Some of the examples revealed by the research firm of how money-in and money-out transactions were conducted are

·??????Money-in transaction 1- KRUNAL TRADE AND INVESTMENTS PVT LTD

As per Mauritius corporate records, the directors of this company are Vinod Adani and Subir Mittra, the?CEO?of the Adani private family investment office. Despite the lack of signs of genuine operations, between financial years 2009 and 2010, Krunal lent INR 11.71 billion (US ~$253 million) to an Adani private entity focused on real estate named Sunbourne Developers Pvt. Ltd. (“Sunbourne”), per Sunbourne’s financial records.After previously being funded by Krunal, in 2020 Sunbourne lent INR 9.84 billion (U.S. $138 million) to Adani Enterprises, an Adani listed entity, in a disclosed related party transaction.?

·??????Money-in transaction 2- EMERGING MARKET INVESTMENT DMCC

Being one of the few shell companies managed by Vinod Adani, this company had lent $1 Billion to Mahan Energen a subsidiary?of Adani Power ltd. as per the disclosure made by Adani Power ltd made on the stock exchanges. Emerging Market Investment DMCC lists no employees on?LinkedIn; doesn’t show up through online searches other than its corporate registration; has announced no clients and no deals; and has a luxury residential apartment in the UAE as its official contact address. It appears to be nothing more than a shell.

This raises the question: How did Emerging Market Investment DMCC amass $1 billion in capital to lend to Adani Power?

·??????Money-in transaction 3 –

A Cypriot Entity Controlled By Vinod Adani Had An Investment of U.S. ~$85 Million in An Adani Private Entity, With No Disclosure of the Related Party Nature

The Money Appears To Then Have Then Been Directed To Listed Adani Enterprises, Along With Other Private Adani Entities

And there were may such shocking revelations based on how the shell companies controlled by Vinod Adani is moving money into listed Adani companies with the help of its subsidiaries.

·??????Money-out transaction 1 – GROWMORE TRADE AND INVESTMENT

In 2009, Adani Power Maharashtra Ltd., an Adani Power subsidiary,?was developing?a 1,980 MW project in Tiroda, India. In 2010, a mysterious Mauritius entity – Growmore Trade and Investment (“Growmore”) – bought a 26% interest in Adani Power Maharashtra for a purchase price of?$128 million. In 2011, Growmore received a very generous offer from Adani Power to purchase, via?merger, Growmore’s stake in Adani Power Maharashtra. The?valuation?of that stake grew overnight from $128 million to around $551 million[57]?– a U.S. $423 million windfall

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·??????Money-out transaction 2 – PMC PROJECTS (INDIA) PVT. LTD.

A Major Contractor To The Adani Group Named ‘PMC Projects’ Has Generated INR 63 Billion (U.S. $784 Million) In Revenue In The Past 12 Years. The Entity Currently Has No Website. Records Show It Was Based At Adani’s Corporate Address, Shared A Phone Number With Adani, And Has Numerous Overlapping Employees. A 2014 DRI Investigation Called It A “Dummy Firm” For Adani Group.

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And similarly there were many more ways displayed about how money was siphoned off from the listed adani companies.

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AUDITOR’S SHOCKING BACKGROUND –

The independent auditor for Adani Enterprises and Adani Total Gas is a tiny firm called Shah Dhandharia. Shah Dhandharia seems to have no current website. And has only 11 employees.Adani’s 7 key listed entities collectively have 578 subsidiaries and have engaged in a total of 6,025 separate related-party transactions in fiscal year 2022 alone, per BSE disclosures. The audit partners at Shah Dhandharia who respectively signed off on Adani Enterprises and Adani Total Gas’ annual audits were as young as 24 and 23 years old when they began approving the audits.

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SILENCING OF THE CRITICS –

Gautam Adani has claimed in an interview to “have a very open mind towards criticism…Every criticism gives me an opportunity to improve myself.” Despite these claims, Adani has repeatedly sought to have critical journalists or commentators jailed or silenced through litigation, using his immense power to pressure the government and regulators to pursue those who question him. They believe the Adani Group has been able to operate a large, flagrant fraud in broad daylight in large part because investors, journalists, citizens and even politicians have been afraid to speak out for fear of reprisal.

?CFO TURNOVER –

Adani Group Has Had Extensive Turnover In Its CFO Roles. Example: Adani Enterprises Has Had 5 CFOs In 8 Years. This highlights significant corporate governance risks.

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HISTORY OF SCANDALS –

According to the research report, the adani group has history of being involved in scandals. Some of them are-

·??????‘The Iron Ore Scandal’. Adani Enterprises′ Role In An Alleged INR 600 Billion (U.S. $12 Billion) Scam Involving Illegal Exports Of Iron Ore

·??????The Investigative Documents Squarely Accused Adani Enterprises Of Bribing All Levels Of Government

·??????Power Equipment Over-Invoicing Scandal’

·??????In 2014, The DRI Alleged Adani Group Had Over-Invoiced Power Plant Equipment By INR 39.74 Billion (~U.S. $800 Million At The Time), “Indulged in Trade Based Money Laundering”, Passing On Costs To Consumers And Siphoning Funds From Its Public Entities

·??????Adani Group’s Involvement In An Alleged INR 290 Billion (U.S. ~$4.4 Billion) Scam To Over-Invoice Indonesian Coal Imports, Passing Costs Off To Taxpayers

·??????Investment Banks And Professional Investors Have Steered Clear Of Adani Listed Companies

·??????Sell Side Coverage From Major Banks And Brokers Is Virtually Non-Existent In Many Adani Stocks

·??????Some Brokers Have Quietly Expressed Concerns About the Trading Activity In Adani Stock.

THE KETAN PAREKH ANGLE –

As we all know that Ketan Parekh has been of the most notorious stock market manipulator.

SEBI has investigated more than 90 entities or individuals, and sanctioned or reached financial settlements with at least 70 of those, including Adani promoters, for pumping Adani Enterprises stock – at some points in excess of 100%, according to SEBI documentation available online. The alleged manipulation occurred between 1999 and 2005.

1999-2001 The Ketan Parekh Adani Stock Rigging Scam. “The Charges Leveled Against Promoters Of Adani That They Aided And Abetted Ketan Parekh Entities In Manipulating The Scrip Of Adani Stand Proved” – 2007 SEBI Ruling. Investigators Showed That 14 Adani Private Companies Transferred Shares To Entities Controlled By Parekh, Which Then Engaged In Blatant Stock Manipulation Of An Adani Listed Entity. Adani Group Entities Initially Received Bans For Their Role, But Those Were Later Reduced To Small Fines.

Adani Group entities originally received bans for their roles, but those were later reduced to fines, a show of government leniency toward the Group that has become a decades-long pattern.

Per the 2007 investigation, 14 Adani private entities transferred shares to entities controlled by Parekh, who then engaged in blatant market manipulation.?

SUSPICIOUS SHAREHOLDING PATTERN –

For many Adani listed companies, a large portion of their “public” shareholders are funds based in the opaque jurisdiction of Mauritius.?Importantly, funds identified in this section, which we believe should be classified as “promoter” (insider) entities, hold enough shares of Adani listed companies to put four of them well over the 75% threshold, triggering delisting.

The research firm has pointed out the names of some of the suspicious entities. Some of them are as follows-

MONTEROSA INVESTMENT HOLDINGS –

A group of 5 supposedly independent investment funds have an incredibly suspicious pattern of holdings. All 5 entities were formed out of Mauritius by the same incorporator, based out of the same address, and with multiple overlapping nominee directors. All 5 funds are controlled by Monterosa Investment Holdings (“Monterosa”), per?Legal Entity Identifier?(LEI) data

Monterosa’s Chairman And CEO Served As Director In 3 Companies Alongside A Fugitive Diamond Merchant Who Allegedly Stole U.S. $1 Billion Before Fleeing India

?ELARA CAPITAL :-

London-based?Elara Capital Plc?(“Elara”) operates the Mauritius-based India Opportunities Fund and Vespera.?India Opportunities Fund had a total market value of about INR 246.36 billion (U.S. $3.04 billion) – of which INR 243.35 billion (U.S. $3.01 billion), or 98.78%, was invested in 3 Adani stocks,?

“It′s Staring In Your Face…But Does Somebody Have The Courage Or The Balls To Really Put It Out There?”— Former Elara Employees Told the research firm about Adani and Promoters “Definitely” Have Money In These Funds

?NEW LEANIA INVESTMENTS :-

New Leaina Investments (“New Leaina”) is a Cyprus-based investment manager whose?website?vaguely describes its investment approach as “considerably broad.” Despite the “broad” approach, as of June 2021 approximately 95% of New Leaina’s holdings consisted of a $420 million,?1.01% stake?in Adani Green Energy, according to Bloomberg.

New Leaina Is Managed By Amicorp Group, A Corporate Services Firm With Extensive Ties to Adani’s Web Of Offshore Entities Amicorp Played A Key Role in The $4.5 Billion 1MDB Fraud Scandal, Creating Money Laundering Entities Masquerading As Mutual Funds, According To Reporting On The Scandal

Adani Group has a deep relationship with Amicorp.

OPAL INVESTMENTS PVT. LTD. :-

Adani Power’s Largest “Independent” Public Investor Is An Opaque Mauritius-Based Entity Called Opal Investment Private Ltd; Which Owns 4.69% Of The Company (~19% Of The Reported Public Float)

• Opal is a Mauritius shell entity. Its beneficial ownership is concealed via nominee directors, per the?Mauritius corporate registry.
• We found no news articles about the investment firm (aside from media questions and confusion over why the entity is so opaque and owns so much Adani Power).
• We found no website, and no?employees on LinkedIn. We found no marketing materials for the investment fund. No signs that any of its principals have presented at any investment conferences.
• Opal’s investment portfolio has zero diversification. It consists solely of Adani Power shares, per FactSet.

Opal Was Formed On The Exact Same Day, In The Exact Same Jurisdiction, By The Same Registered Agent As Another Entity Formed and Controlled by Vinod Adani

Opal was incorporated in Mauritius by a small corporate services company called?Trustlink International, per?Mauritius corporate?records.Trustlink’s CEO openly touts his close relationship to Adani Group on his own?LinkedIn profile?even claiming he “sits on the board of … the Adani Group.”

AS PER LATEST MEDIA REPORTS -

Adani group is going to issue a detailed reply on the Hindenburg report after they are done with the FPO.

Also the adani group is planning to sue the research firm.

According to me, its suspicious that this report went public just a few days before the INR 20000cr FPO in the pipeline which is supposed to be India’s largest private sector FPO.

This report led to a wipe out of around $50 Billion from the market value of Adani group companies. Since the research firm already had take short positions, it must have benefited significantly.

Also as per the Media reports the anchor book of the FPO is already oversubscribed.?So it would be interesting to see the names of the mutual fund companies investing in this FPO despite such major controversies going on.

LIC being India’s one of the most trusted companies had already invested around INR 70000cr into the listed adani companies and as per latest news its investment value has crashed to around INR 53000cr despite this, the company has invested more INR 300cr. Not just LIC but even SBI Employees Pension Fund and SBI Life were still investing INR 225cr in the Adani group.

The Opposition has raised questions related to this matter.

Also we can’t ignore the fact the float in the group companies is very low and hence there is a possibility that the share price might not see a drastic fall.

We will have to wait and watch about what happens with the subscription status of the FPO as it could be a make or break for the adani group.

?So let the dance begin!! ;D

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