Indian conglomerate Adani Group has responded to a report published by American short-seller Hindenburg Research, claiming that it complies with all local regulations and has provided important regulatory disclosures.
Last week, Hindenburg published a report that immediately made Adani lose $48 billion of its stock value. Company founder Gautam Adani also slipped to rank seventh on the Forbes list of the world's wealthiest people after occupying seat No. 3.
According to Adani, the report is an attempt for the short seller to make financial gains. The company further accused Hindenburg of trying to hamper the growth of India's economy in general.
Media statement on a report published by Hindenburg Research. pic.twitter.com/ZdIcZhpAQT— Adani Group (@AdaniOnline) January 25, 2023
"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 said in its response paper.
Adani allegedly uses offshore entities in tax havens, like the Caribbean islands. Hindenburg also said that some of these offshore shell companies own stock in firms under the Adani Group.
The Hindenburg report also mentioned that five of seven major companies in the Adani Group had indicated "a heightened short-term liquidity risk." Hindenburg explained that these companies had a large amount of debt that could put the entire group in a precarious situation.
Due to the high valuations of Adani's shares, investors of these seven key companies face up to 85 percent downside of their share ownership.
Adani’s response to @HindenburgRes is the same as @Herbalife’s response to our original 350-page presentation. Herbalife remains a pyramid scheme. I found the Hindenburg report highly credible and extremely well researched. @AdaniOnline response speaks volumes. Caveat emptor. https://t.co/og6DLbPzp5— Bill Ackman (@BillAckman) January 27, 2023
Adani then explained that it is a common global practice to raise financing against shares as collateral, adding that banks and other financial institutions give loans through credit analysis.
The report also suggested that there was an excess of promoters — key shareholders — owning Adani's shares, up to 74 percent in several cases.
Combined with high shares holdings by Adani's offshore entities, the group is likely going against the Indian government's 25 percent public ownership mandate, which applies to all companies that have launched an IPO.
The group explained that the promoter pledge positions had dropped to less than 20 percent last December in some of its listed stocks. Previously, in March 2020, the core shareholders' pledge positions in most of its stocks exceeded 50 percent.
Before publishing the report, Hindenburg had proposed 88 questions regarding Adani's operations. Adani explained that Hindenburg could find 65 answers to those questions in its companies' annual reports. However, Hindenburg said Adani did not provide "direct and transparent answers" to the questions, which was a "telling" move.
Our response to Adani: pic.twitter.com/6NcFKR8gEL— Hindenburg Research (@HindenburgRes) January 26, 2023
Analysts said the fallouts following the Hindenburg report were one of the biggest challenges that Adani had dealt with. Adani had to disclose its annual reports and earlier court rulings to answer the allegations.
Sources reported that Adani was considering bringing the case to the court on Thursday. On the same day, Hindenburg responded that it would welcome the action.
Adani's share sales
Adani's response to Hindenburg came as its flagship firm, Adani Enterprises, proceeded with a $2.5 billion share sale. However, Hindenburg's report overshadowed this new development.
Since Hindenburg's report was published a few hours before the Indian market opening, the shares of Adani Enterprises fell below the issue price on Friday, increasing doubts about the success of this follow-up offering.
Adani chief financial officer Jugeshinder Singh said the enterprise would focus more on share sales. Singh added that the group remained confident in overcoming the current challenges, saying that its important investors would remain with Adani.
"We are confident the FPO (follow-on public offering) will also sail through," Singh said.