This tycoon lost 36,000 million dollars in a few days. Who is it and what happened?

Elton GardnerFebruary 1, 2023

0 101 5 minutes read

Gautam Adani, president and founder of the Adani Group, in Boston last year. (M. Scott Brauer/The New York Times)

Indian billionaire Gautam Adan faces a big challenge: a small American company accuses his conglomerate of fraud and stock market manipulation.

Louis Vuitton. Tesla. Amazon. The companies behind the world’s richest people need no introduction. But last year, a name that does not enjoy the same global recognition joined this exclusive list.

The new entrant was the Adani Group, an Indian conglomerate that controls ports, coal mines, food companies, airports and more. The group’s astronomical rise had given Gautam Adani, its politically well-connected founder, a fortune of nearly $120 billion, according to Bloomberg, putting him in the company of Bernard Arnault, Elon Musk and Jeff Bezos.

Adani’s stint in that position did not last long. Although he is still enormously wealthy, on paper Adani has lost more than a quarter of his wealth, or more than $36 billion, in the past few days. And he faces perhaps the biggest challenge of his career.

Last week, Hindenburg Research, a small New York investment firm, accused Adani’s company of “blatant tax fraud, stock manipulation and money laundering.” The Adani Group has denied Hindenburg’s accusations that it stands to benefit if the conglomerate’s shares fall.

On Tuesday, Adani Enterprises, Adani’s flagship company, raised $2.5 billion by selling new shares to investors, a move that was being prepared before Hindenburg’s report.

Since the report, the Adani Group has lost about a fifth of its value, losing tens of billions of dollars in market value in less than a week. And the reach of Adani — who remains Asia’s richest man and runs one of India’s biggest conglomerates — could herald more dire consequences for a country that has long been a global economic bright spot.

“It’s a risk to the Indian financial system,” says Tim Buckley, a Sydney-based analyst who has followed Adani’s dealings for more than a decade.

Here’s what you need to know about the Adani Group, its founder, and Hindenburg Research.

The Adani Group has reached new heights in recent years

Adani started a polymer import-export business in the 1980s and slowly expanded his activities into infrastructure.

In the 1990s, he began building a port in Mundra, in his home state of Gujarat. He later added coal mines, power plants and airports to his portfolio. In the last decade, he landed one of his biggest international deals: the Carmichael project in Australia, one of the largest open pit coal mines in the world.

Last year, the Adani Group bought a cement business in India from Holcim, a multinational construction company based in Switzerland. In another show of diversifying his business, Adani took control of NDTV, an independent news outlet.

The success of the Adani conglomerate, in a way, parallels the growth of the Indian economy, which is already the fifth in the world. Adani, 68, has defined himself as an industrialist who contributes to alleviating the lack of infrastructure in his country.

Critics say Adani’s political connections set him apart

The Adani Group would not be where it is, critics say, without its founder’s closeness to Prime Minister Narendra Modi, who has helped the company win lucrative contracts or, in some cases, changed bidding rules entirely. .

Modi, like Adani, is from Gujarat, and when Modi became prime minister in 2014, he flew to New Delhi on an Adani plane. Adani’s relationship with Modi has created a widespread perception in India that Adani can make any deal he wants, creating an uneven playing field.

Adani has denied the accusations of preferential treatment. The foundations of his business, Adani said in a recent interview, were laid in the 1980s, when the Indian government relaxed trade restrictions.

“My professional success is not due to any individual leader, but to political and institutional reforms initiated by various leaders and governments over a long period of more than three decades,” Adani told India Today magazine.

Adani faced controversy ahead of Hindenburg’s accusations

For the most part, the billionaire has kept a low profile despite becoming one of the richest men in the world. He is a follower of the Jain religion, which emphasizes asceticism, and he and his family tightly control his conglomerate (Hindenburg has criticized the ownership structure of his company).

Months before Hindenburg made his accusations, the soaring shares of an Adani subsidiary drew attention. Much of the business activity of the subsidiary, Adani Enterprises, was traced to holding companies based in tax havens, leading to speculation that the shares — which had helped boost Adani’s personal wealth — were being manipulated. Shares in Adani’s seven subsidiaries have soared more than 800 percent in the past three years, according to Hindenburg.

Adani’s company previously faced investigations for alleged tax irregularities related to coal imports, but was ultimately cleared. Adani was also linked to an Indian stock market manipulation scam concocted by a Mumbai stockbroker named Ketan Parekh.

As Adani’s business empire has grown, he has turned to foreign banks to finance his acquisitions and investments. This, according to Buckley, the Australian analyst, could mean more scrutiny.

“The big problem is that Adani has spent the last four years going into debt on Wall Street,” Buckley said. “If you raise money in the United States, you have to play by the rules of the United States.”

Hindenburg has a good track record

Hindenburg, named after the famous doomed aircraft, is what is known on Wall Street as an activist short trader. The company looks for fraud and other wrongdoing in public markets, reports wrongdoing, and makes money doing it. You make a profit when your target, often a publicly traded company, sees its share price fall.

Some have criticized activist short traders for betting against the companies. Traders say they are helping to watch the market.

Hindenburg, only a few years old, has attacked some 30 companies and rose to prominence by taking down electric vehicle maker Nikola. According to Bloomberg News, shares of those companies fell about 15 percent, on average, the day after Hindenburg issued his report, and were down 26 percent six months later.

In the Adani Group, Hindenburg founder Nathan Anderson is up against a Goliath. Hindenburg said he investigated Adani’s dealings for two years before publishing his report on Jan. 24. The Adani Group threatened to sue Hindenburg, who responded by saying that he would welcome a lawsuit in the United States, where he could demand documents from Adani as part of the legal process.

Among Hindenburg’s allegations is that shell companies run by Adani’s older brother, Vinod Adani, helped the conglomerate manipulate its share prices. According to Hindenburg, shell companies are also used to launder assets from Adani’s private companies to publicly traded ones, “to maintain the appearance of financial health and solvency.”

Hindenburg highlighted what he called “glaring tax irregularities and unclear management,” noting that the fact that Adani’s listed companies did not have long-standing CFOs was a red flag. The short trader also questioned the quality of the independent auditor of two subsidiaries, Adani Enterprises and Adani Gas. The auditor’s employees were “essentially fresh out of school, hardly in a position to examine and account for the finances of some of the largest companies in the country.”

Hindenburg went on to say that even if his allegations were ignored, the Adani Group companies were so overvalued that their shares could drop 85 percent. The group is also overburdened with debt, Hindenburg added.

The Adani Group has called Hindenburg’s accusations attacks on India and its “story of growth and ambition.” Hindenburg has countered by saying: “India’s future is being braking by the Adani Group, which has draped itself in the Indian flag while systematically looting the nation.”

The fight could have geopolitical implications, as the United States is courting India as a counterbalance to China, under a grouping called the Quad Security Dialogue, known as the Quad, which also includes Japan and Australia, according to Buckley. It is not clear how the conflict will be resolved, but one thing is certain, he said: “It will be very complicated.”

Vivek Shankar is a senior editor for the international section. Previously, he worked for Bloomberg News in San Francisco, Sydney and Washington. @vivshank