Adani Group | Weathering a second storm

In yet another setback to the Adani Group, the Organised Crime and Corruption Reporting Project (OCCRP), a global network of investigative journalists, has claimed access to exclusive documents that allegedly show how hundreds of millions of dollars were invested in publicly traded Adani stocks through Mauritius-based opaque investment funds. OCCRP relied on files from multiple tax havens, bank records and internal Adani Group emails as part of its investigation that was first shared with two prominent foreign newspaper organisations and later made public on its website on August 31.In at least two cases—representing Adani stock holdings that at one point touched $430 million (Rs 3,558 crore)—the mysterious investors were found to have ties with the group’s majority shareholders, the Adani family. The two men—Nasser Ali Shaban Ahli and Chang Chung-Ling—have long-time business connections with the family and have also served as directors and shareholders in Adani Group companies and firms associated with Vinod Adani, group chairperson Gautam Adani’s elder brother, the report alleges. The documents show that two Mauritius-based funds—Emerging India Focus Fund and the EM Resurgent Fund—had invested and traded in large volumes of shares of four Adani companies between 2013 and 2018. Through these offshore firms, the two men spent years buying and selling Adani stocks via offshore structures that obscured their involvement—and made considerable profits in the process, the report alleges. They also show that the management company in charge of their investments paid a Vinod-promoted company to advise them on their investments.If Indian stock market regulator Sebi (Securities and Exchange Board of India) were to consider Ahli and Chang as part of the promoter group, it would mean that the Adani Group firms flouted laws aimed at preventing artificial inflation of share prices. As per Indian laws, promoters can hold only a maximum of 75 per cent shares in listed companies, and the remaining 25 per cent should be made available to the public for trading as free float. The key question is whether this law has been breached. The Adani Group, however, has denied the allegations, saying they were “recycled”. “These news reports appear to be yet another concerted bid by (George) Soros-funded interests and supported by a section of the foreign media to revive the meritless Hindenburg report,” the group said in a media statement on August 31. Soros is a Hungarian-born American financier.On January 24, New York-based short-seller Hindenburg Research had come out with a sensational report that levelled a series of allegations against the Adani Group, including stock market manipulation and accounting fraud. Hindenburg had accused the conglomerate of a “brazen stock manipulation and accounting fraud scheme over the course of decades”. The report named a few offshore companies that it alleged were used to invest in Adani stocks, but did not reveal who was using those companies to make these investments. The OCCRP investigation claims to have identified that missing link.Hindenburg, which has a history of “shorting” large corporate houses, had raised 88 questions, including charging the Adani Group with pledging shares of their artificially inflated stocks for loans, putting it in a precarious financial position and alleging that it was using shell companies overseas, many managed by Vinod, to generate fake turnover and siphon off money from its seven listed companies. The charges took the Adani Group by surprise and stocks of its companies plummeted on the Indian bourses. On February 7, the combined market capitalisation of Adani Group companies stood at just Rs 9.8 lakh crore, nearly half their valuation from the previous month. Gautam also fell from his sometime perch at 3rd in the Forbes’ list of the world’s wealthiest people to the 17th position and lost his place as India’s richest. Since then, the combined m-cap of the group’s listed companies had gradually risen to Rs 10.85 lakh crore as on August 30, but fell to Rs 10.49 lakh crore the next day following OCCRP’s allegations. As on September 4, Adani is the 24th richest, with a wealth of $54.2 billion (Rs 4.9 lakh crore).The essence of the Hindenburg allegations was that some of the Adani Group’s key “public” investors were in fact Adani insiders, a possible violation of Indian securities law. In March, the Supreme Court of India formed an expert committee to investigate the allegations, but it concluded that there was no evidence of any “regulatory failure”. It did outline the scope and extent of Sebi’s investigation, though, which is ongoing. OCCRP’s report alleges that none of the agencies contacted by the SC committee was able to identify those investors, “since they were hidden behind secretive offshore structures”. The question of whether this arrangement is a violation of the law rests on whether Ahli and Chang should be considered as acting on behalf of the Adani “promoters”. The report quoted stock market experts as saying that when a company buys its own shares above 75 per cent, it is not just illegal but a share price manipulation as well. By doing so, the company creates artificial scarcity. Sebi has sought more time from the SC to conclude its investigations, since two crucial aspects raised by the Hindenburg report continue to be in an “interim” stage, say media reports.In a media statement, the Adani Group said the claims by the OCCRP were based on closed cases from a decade ago when the Directorate of Revenue Intelligence probed allegations of over-invoicing, transfer of funds abroad, related-party transactions and investments via foreign portfolio investors (FPIs). “An independent adjudicating authority and an appellate tribunal had both confirmed that there was no overvaluation and that the transactions were in accordance with applicable law. The matter attained finality in March 2023 when the Hon’ble Supreme Court of India ruled in our favour. Clearly, since there was no overvaluation, there is no relevance or foundation for these allegations on transfer of funds,” it said. Notably, these FPIs are already part of the investigation by the Sebi and the SC, both of which have found “no evidence of any breach of the minimum public shareholding requirements or manipulation of stock prices”, the statement added. After the Hindenburg crisis, the Adani Group made efforts to balance its growth ambitions with its capex plans, and initiated the process of paying off debt in its companies and cleaning up their balance sheets. While the group continues to pursue its big plans in the infrastructure space, it is likely to be cautious about entering new areas of business that require substantial capital investment. The thrust appears to be on ensuring the timely completion of ongoing projects. The conglomerate has pared debt in Adani Enterprises, Adani Power and Ambuja Cement, and redeemed promoter pledges. The efforts seem to have paid off, going by the quick recovery in the group companies’ share prices even after the OCCRP allegations. However, much now depends on how Sebi concludes its investigations under the apex court’s watch, something that the market will be viewing with great interest.Experts are of the view that Sebi should take note of the allegations that have come up in the past few days, including those of OCCRP and of a reported Enforcement Directorate investigation that said a dozen companies, including foreign investors based in tax havens, were “top beneficiaries” from short-selling of the Adani Group companies. Some of these investors had taken positions on Adani stocks just a few days before the release of the Hindenburg report. None of these entities, media reports say, has reported their tier ownership structures to income-tax authorities. These findings were reportedly shared with Sebi and should provide cues to the market regulator to further investigate the alleged stock price manipulation, they add. Only a fair probe can best serve the interest of all stakeholders.Edited By: Aditya Mohan WigPublished On: Sep 7, 2023Must Watch

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