Hindenburg affair is chastening for both Adani and India Inc

Lessons learned from how allegations of sharp practices can cause billions of dollars of losses

February 8, 2023

The worst could be over for Gautham Adani, founder of Adani, the multinational conglomerate involved in port development and operations in India.

The corporation has been at the centre of a financial storm that at one stage wiped $133 billion off its value and threatened the country’s wider economy.

Share prices are recovering after the hit to Indian markets when US short seller Hindenburg Research published a report into Adani’s corporate and financial practices last month.

Hindenburg alleged sharp practices including share price manipulation, lack of transparency and exorbitant levels of debt that amounted to a challenge not just to the Adani empire, but to the entire Indian economic infrastructure.

Adani categorically denied the allegations and called the Hindenburg report an attack on India itself.

For a while, it seemed possible that Adani bankers, Indian and international, could withdraw facilities as the value of equity collateral was in freefall and creditworthiness impaired.

Several actions have taken place to head off this doomsday scenario.

Adani shored up his defence against the short sellers by calling off a planned $2.5 billion share issue – even after it had raised the money it was seeking from a group of investors, including International Holding Company of the UAE.

He would have lost friends in high places, in India and elsewhere, if they had been left sitting on big market losses in the fundraising.

Indian financial and market authorities have (belatedly) come out with robust statements in support of the multi-billionaire tycoon.

The finance minister underlined the resilience of the India economy and the central role of the Adani group within it, and the stock market pledged to examine the Hindenburg allegations.

Adani himself promised to repay some big loans early, and to rein in spending in a bid to cut his high levels of leverage.

Capital expenditure would be cut in half this year at the big ports business, while around $1.75 billion had either already been repaid, or soon would be.

Barring any other bad news, Adani, the Indian authorities and investors can take a breath and reflect on the lessons learned over the financial carnage of the past couple of weeks.

First, there is a lesson for the Indian market authorities on the need for a more rapid response.

The damage had largely been done by the time the stock market regulators showed any serious interest in the Hindenburg allegations. The size and scale of the market falls demanded more urgent action.

Second, all Adani investors will have to ramp up their due diligence procedures in future in dealing with the Indian group. IHC of Abu Dhabi put $2 billion into Adani enterprises last year, and pledged nearly $400 million in the recent aborted fundraising.

Saudi Arabia, incidentally, appears to have dodged a bullet in this respect – prospective deals between the kingdom’s Public Investment Fund and Saudi Aramco with Adani have so far not been consummated.

Thirdly, the concerns of the short sellers have to be addressed, regardless of the disproportionality of the resources available to them and their targets – Hindenburg had nine employees in New York last year, according to its website, Adani had 23,000 globally.

Hindenburg has shown again how “one smart guy with a laptop” can cause many billions of dollars of losses.

The Arabian Gulf needed no such reminding, after the debacle of the collapse of regional health giant NMC following a similar damning report by another relatively obscure outfit, Muddy Waters of San Francisco, in 2019.

As things stand, the fate of NMC is not inevitably awaiting Adani and his empire. But the Hindenburg affair will be a chastening experience for the reduced multi-billionaire, and for India Inc.

Frank Kane is a communications advisor and an award-winning business and finance journalist