From No 2 To No 21

Adani–Biggest Scam in Corporate History

Notan Kar

The Corona pandemic and the unplanned lockdown resulted in unprecedented economic hardships for the common man as the country's economic growth bottomed out. But, the number of individuals with assets more than $100 billion has gone up during the same period. Mr Gautam Adani is one such individual, and by 2022 he had managed to become world's 2nd richest person. Share prices of a particular company contribute a large part in calculating the wealth of such capitalists. Suppose you have 50 shares of a company at Rs 10 each, then your total assets value will be 500 rupees. Now if the share price increases to rupees 12, then your assets value will be 600 rupees. Such artificial rise in share prices has helped Adani's rise in tower. Over the last one year, the share prices of Adani associates have increased by 101% to 167%. Overall, in the last 3 years, sometimes the share prices have even gone-up by 2121% or 1398% for Adani Companies. This artificial inflation of share prices has in fact helped Adani to be the 2nd richest man in the world.

Crony capitalism played a pivotal role for Gautam Adani as the RSS led BJP government went out of the way to help acquire new government contracts one after another. Because of that, the share price of his companies went-up. This smoke screen made him eligible for massive loans from public or private financial institutions in India. Meanwhile, he also bought government property, ports, airports, coal mines at dirt cheap rates which in turn helped him to expand his private capital portfolio.

But on January 24, 2023, a US based stock market analyst 'Hindenburg Research' published a report on Adani's business empire. This report raised questions about the share prices of Adani's companies! According to 'Hindenburg', Adani's shares were sold at a higher rate than their real prices because share prices were artificially inflated by manipulation. "The Adani Group, one of India's biggest conglomerates", had "engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades." said 'Hindenburg'. How has this rigging been done? According to the report, a large portion of the Adani Company's shares are held in the names of various companies that are registered in other countries including Mauritius. But they do not actually exist. Through these fake companies, money has been invested into the shares of Adani companies in various ways, in turn manipulating the share prices. The report, which Hindenburg said, was based on interviews with former executives and research from thousands of documents, raised concerns about high debt and the activities of top executives and concluded that "seven of Adani's companies were overvalued". After the report came out, the share prices of Adani companies started a massive downward trend. Adani himself has lost $48.5 billion out of his $120 billion 'fortune' company. Once ranked No 2 among the world's wealthiest, Gautam Adani has tumbled to No 21 on the report of 'Bloomberg Billionaires Index' (03/02/2023). He has also slipped one spot below his rival and fellow Indian tycoon Mukesh Ambani, the chairman of Reliance Industries. In other words, Adani's wealth has been eroded by half of the total assets. 'Forbes' suggested that the allegations wiped out more than $66 billion in market value from Adani's business empire in a matter of days after the report came out, along with more than $30 billion from Adani's personal 'fortune' company. Such reports about Adani Group's stock market manipulation, money laundering and tax evasion had an overall negative impact on the Indian stock market as foreign investors are leaving the country's stock market. But the problem is not limited to Adani and his private empire. He has actually borrowed a large amount of money from the public sector banks, particularly the State Bank of India. Cumulative loan amounts to more than $9.9 billion, mostly invested in five of his companies i.e. Adani Enterprises, Adani Ports, Adani Power, Adani Green Energy, and Adani Transmission-as of March 2022. SBI on its own has lent over Rs 80,000 crores to Adani. The Life Insurance Corporation of India (LIC) has also invested a huge amount of money in Adani's shares. LIC's total holding under equity and debt is Rs 35,917.31 Crore as on December 2022 under Adani group of companies. That means the future of India's two biggest financial institutions is to an extent linked to the fate of Adani. Overall, Indian banking exposure is less than 40 percent of group debt. Within this, private banks' exposure is below 10 total percent of total group debt. PSU banks do have material exposure (30 percent of group debt) which has not increased in the past three years. Most of the incremental funding to the group for new businesses and acquisitions has been reported to have come via overseas sources. Elara India Opportunities Fund has amassed $4.2 billion- from three stocks: Adani Transmission Ltd, Adani Enterprises Ltd, and Adani Total Gas Ltd. APMS Investment Fund Ltd, whose $3.6 billion portfolio also includes Adani Power Ltd, has done it with four of the Adani stocks. There are three more of these Mauritius-based entities among major shareholders: Cresta Fund Ltd, LTS Investment Fund and Vespera Fund Ltd. These publicity-shy investors own a combined $12 billion of Adani stock. Elara, Cresta, Albula and APMS - held significant stakes in two companies whose founders fled India and have since been probed for money laundering. There was a report last summer that three out of the six offshore funds had seen their accounts frozen by the country's national share depository. In a reply to a question in parliament, India's deputy Finance Minister said neither the funds nor Adani firms were being investigated.

A few days after the publication of the report, Adani dismissed Hindenburg's accusations as baseless, calling the short-seller the "Madoffs of Manhattan." "This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India," Adani's statement said. 'Hindenburg' in turn replied that only about 30 of those pages addressed issues raised in its report, and that Adani had not answered 62 of its 88 questions. "India's future is being held back by the Adani Group, which has draped itself in the Indian flag while systematically looting the nation," the research group said. "We also believe that fraud is fraud, even when it's perpetrated by one of the wealthiest individuals in the world."

Despite a scam of such magnitude, neither the BJP government nor the Prime Minister Narendra Modi himself is assuring investigation. People know very well that Gautam Adani is a close friend of Modi. Modi denies travelling with him abroad and takes benefits of his private aircraft. However, despite so many days since the scam was exposed, neither CBI, ED nor SEBI is being asked to investigate. The opposition has raised some questions in a low voice, but those too may disappear after a few days.

Adani's groups build ports, generate electricity, coal mines, run airports and manufacture defence equipment etc. Among other things, Adani has also made huge investments in foreign countries. Those projects are now in turmoil. For example, after the report came out, the Bangladesh Power Development Corporation wrote to Adani Power and demanded re-evaluation of the agreement. Earlier Australian government has rejected his proposal to set up the coal mine project due to environmental pollution. In India, Adani's offer to take over the power distribution network in Mumbai has met with stiff opposition from the employees of the state-owned electricity company. At present, the Maharashtra Electricity Regulatory commission is looking into the proposal afresh.

If the corporate, capitalists and the state become synonymous, it must be understood that fascism is gaining ground in the country. Italy's 'Benito Mussolini' once said that fascism is the system in which the corporate and the state dissolve into one another. The government's favouritism towards Adani and the comparison of his organisation with the country seems to give credence in the country to Mussolini's ideas.

Earlier, before the 'Hindenburg' report came out, Indian journalists such as Sucheta Dalal, Paranjay Guha Thakurta who questioned about the doubtful massive price rise of Adani shares, had to face a lot of government sponsored harassment. Overall, this tug of war between 'market economy' and State support to him is likely to determine Adani's future as billionaire Gautam Adani continues to battle the worst crisis of his corporate life initiated by a US short-seller.


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Vol 55, No. 44, April 30 - May 6, 2023