India's Adani Group has issued a detailed riposte to a report that sparked a $48 billion rout in its stocks, saying it complied with all local laws and had made the necessary regulatory disclosures.
The conglomerate led by Asia's richest man, Indian billionaire Gautam Adani, said last week's report by Hindenburg Research was intended to enable the US-based short seller to book gains, without citing evidence.
For Mr Adani, 60, the stock market meltdown has been a significant setback for a school dropout who rose swiftly in recent years to become the world's third richest man, before slipping last week into seventh position on the Forbes rich list.
The Adani Group's response comes at a time when its flagship business, Adani Enterprises, continues to press forward with its $2.5 billion share sale.
This has been overshadowed by Hindenburg's report, which flagged concerns about debt levels and the use of tax havens.
“All transactions entered into by us with entities who qualify as 'related parties' under Indian laws and accounting standards have been duly disclosed by us,” the Adani Group said in the 413-page response issued late on Sunday.
“This is rife with conflict of interest and intended only to create a false market in securities to enable Hindenburg, an admitted short seller, to book massive financial gain through wrongful means at the cost of countless investors.”
Hindenburg said on its website that Adani's “response largely confirmed our findings and ignored our key questions”.
It repeated that it had taken up short positions against the Adani Group through US traded bonds and non-Indian-traded derivative instruments.
Its report questioned how the group has used offshore entities in tax havens such as Mauritius and the Caribbean islands, and said certain offshore funds and shell companies “surreptitiously” owned stock in Adani's listed companies.
However, the group said the report made “misleading claims around offshore entities” without any evidence whatsoever.
Hindenburg said it “found Adani’s lack of direct and transparent answers” on the allegations of use of offshore entities “telling”.
Adani said on Thursday that it was considering taking action against Hindenburg, which responded on the same day by saying it would welcome such a move.
Hindenburg's report also said five of seven key listed Adani companies had reported current ratios, a measure of liquid assets minus near-term liabilities, of below one, which is considered to suggest “a heightened short-term liquidity risk”.
It said key listed Adani companies had “substantial debt” that put the entire group on “precarious financial footing” and claimed that shares in seven Adani listed companies had an 85 per cent downside due to what it called “sky-high valuations”.
Adani's response stated that companies within its group had “consistently de-levered” over the past decade.
Defending its practice on pledging shares of its promoters — or key shareholders — the Adani Group said that raising financing against shares as collateral was common practice globally and loans were given by large institutions and banks on the back of thorough credit analysis.
The group said there was a robust disclosure system in place in India and its promoter pledge positions across portfolio companies had dropped from more than 50 per cent in March 2020 in some listed stocks to less than 20 per cent in December 2022.
The fallout from the Hindenburg report is considered to be one of the biggest career challenges to face the billionaire, whose business interests range from ports, airports, mining and power to media and cement.
The Adani Group's response had more than 350 pages of annexes that included snippets from annual reports, public disclosures and earlier court rulings.
Hindenburg, Adani said, had sought answers to 88 questions in its report, but 65 of them were related to matters that have been disclosed by Adani portfolio companies in annual reports.
The rest, Adani said, relate to public shareholders and third parties, and some were “baseless allegations based on imaginary fact patterns”.
Hindenburg said “Adani failed to specifically answer 62 of our 88 questions.”
Hindenburg is known for having shorted electric lorry maker Nikola and social media platform Twitter.
The Adani Group also responded to allegations by Hindenburg relating to the company's auditors, saying “all these auditors who have been engaged by us have been duly certified and qualified by the relevant statutory bodies”.
Its response came a few hours before the Indian market opened, when Adani Enterprises's $2.5 billion secondary sale began its second day of subscription.
Friday's plunge took Adani Enterprises shares below the issue price, raising doubts about its success.
Separately, on Sunday, Adani's chief financial officer Jugeshinder Singh said the group was focused on the secondary sale and was confident it would succeed.
He also said its anchor investors had shown faith and remained invested.
“We are confident the FPO [follow-on public offering] will also sail through,” he said.
