Our Reply To Adani: Fraud Cannot Be Obfuscated By Nationalism Or A Bloated Response That Ignores Every Key Allegation We Raised

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On January 24th, we released a report outlining numerous issues of suspected fraud at the Adani Group, the 2nd largest conglomerate in India run by the world’s then-third richest man.

Hours ago, Adani released a ‘413-page response’. It opened with the sensationalistic claim that we are the “Madoffs of Manhattan”. [1]

Adani also claimed we have committed a “flagrant breach of applicable securities and foreign exchange laws.” Despite Adani’s failure to identify any such laws, this is another serious accusation that we categorically deny.

It also predictably tried to lead the focus away from substantive issues and instead stoked a nationalist narrative, claiming our report amounted to a “calculated attack on India.” In short, the Adani Group has attempted to conflate its meteoric rise and the wealth of its Chairman, Gautam Adani, with the success of India itself.

We disagree. To be clear, we believe India is a vibrant democracy and an emerging superpower with an exciting future. We also believe India’s future is being held back by the Adani Group, which has draped itself in the Indian flag while systematically looting the nation.

We also believe that fraud is fraud, even when it’s perpetrated by one of the wealthiest individuals in the world.

In terms of substance, Adani’s ‘413 page’ response only included about 30 pages focused on issues related to our report.

The remainder of the response consisted of 330 pages of court records, along with 53 pages of high-level financials, general information, and details on irrelevant corporate initiatives, such as how it encourages female entrepreneurship and the production of safe vegetables.

(Source: Page 24 of Adani’s response, before addressing our questions, which describes its initiative to produce safe to eat vegetables)

Adani Failed To Specifically Answer 62 of Our 88 Questions

Of The Questions It Did Answer, The Group Largely Confirmed Or Attempted to Sidestep Our Findings

Our report asked 88 specific questions of the Adani Group. In its response, Adani failed to specifically answer 62 of them. Instead, it mainly grouped questions together in categories and provided generalized deflections.

In other instances, Adani simply pointed to its own filings and declared the questions or relevant matters settled, again failing to substantively address the issues raised.

Of the few questions it did answer, its responses largely confirmed our findings, as we detail.

But before we get into those, we note that the core allegations of our report – focused on numerous suspect transactions with offshore entities – were left completely unaddressed.

Our Report Alleged That Adani Group Has Engaged In Billions of U.S. Dollars In Suspicious Dealings With Its Chairman’s Brother, Vinod Adani, And His Labyrinth of Offshore Shell Entities

These Dealings Raised Serious Questions About Stock And Accounting Manipulation

Adani’s Defense: Vinod Adani, Brother To The Chairman, Is Not A Related Party To The Group And There Are No Disclosable Conflicts Relating To This Web Of Opaque Transactions

Our report detailed a vast labyrinth of offshore shell entities directed by or associated with Vinod Adani, the older brother of Chairman Gautam Adani. These entities included 38 entities in Mauritius, along with others in the UAE, Cyprus, Singapore, and various Caribbean islands.

We presented extensive evidence that these entities have been used for (1) stock parking / stock manipulation (2) or engineering Adani’s accounting.

Many of our questions were focused on both the nature of these transactions and the lack of disclosure around the clear conflicts of interest involved.

In its response, Adani did not seem to dispute the existence of these transactions and made no effort to explain their obvious irregularities.

Instead, Adani bizarrely argued that Vinod Adani is not a related party to the Adani Group, and that there are no disclosable conflicts relating to the transactions that have collectively moved billions of U.S. dollars through Adani Group entities, largely through offshore shell entities.

We Asked About The Source of The Billions Of U.S. Dollars That Have Flowed From Vinod Adani-Associated Offshore Shell Entities Through The Adani Group

Adani’s Defense: “We Are Neither Aware Nor Required To Be Aware Of Their ‘Source Of Funds’”

Example #1: A U.S. ~$253 Million Loan From a Mauritius Entity Where Vinod Adani Serves As a Director

Example #2: An Investment Of U.S. $692.5 Million From A Mauritius Entity Controlled By The Head Of The Adani Group’s Private Family Investment Office

Beyond the requirements to disclose related party dealings, many of our questions focused on the source of funds for suspect transactions between Adani Group entities and Vinod Adani-associated entities. This information is critical to the integrity of Adani’s business, as it indicates whether the company is round-tripping turnover, laundering illicit funds, or using cash to manipulate its stock.

We found Adani’s lack of direct and transparent answers to these questions telling.

For example, we asked a series of questions about transactions emanating from entities where Vinod Adani or the head of the Adani Group Family Investment Office served as directors.

Adani’s response claimed ignorance, stating “We are neither aware nor required to be aware of their ‘source of funds’” [Pg. 35]. It also added that it is “not in a position to comment on…allegations on the business dealings and transactions of Mr. Vinod Adani.” [Pg. 41]

In other words, we are expected to believe that Gautam Adani has no idea why his brother Vinod lent massive sums of money to Adani entities, and no idea where the money originated from.

If any of that were true, Gautam could easily clear up the mystery by calling his brother, or asking him at the next family dinner, why he has been directing billions of dollars to Adani-controlled entities through a network of opaque offshore shell entities. He could also call the head of his own Family Investment Office and ask the same.

Once again, these explanations simply defy common sense.

Our Report Outlined Numerous Irregularities And Connections Between Suspected Offshore Stock Parking Entities And Adani Promoters, Raising Key Questions About Whether Promoter Holdings Were Fully Disclosed

Adani’s Response Claimed It Simply Doesn’t Know Who Its Largest Public Holders Are

A large portion of our report was dedicated to outlining a web of opaque offshore entities, often with connections to Vinod Adani, that seemed to hold nothing but billions of U.S. dollars worth of stock in Adani listed companies. 

As a reminder, here are several examples of suspect Mauritius-based entities with large, concentrated holdings in Adani stock:

(Source: *Disclosures as per Trendlyne, BSE : 12345, **No other holding visible in listed equities)

In one example, we showed how an entity that had been an Adani related party made a major investment into one of the suspect offshore holders, drawing a clear line between the Adani Group and the suspected stock parking entities.

We also showed how several of the suspected stock parking entities had been formed with the help of Amicorp, which was involved in one of the most notorious international fraud and money laundering scandals in history, the 1MDB scandal.

Specifically, regarding the company’s use of Amicorp, which formed at least 7 Adani promoter entities, at least 17 offshore shells and entities associated with Vinod Adani, and at least 3 Mauritius-based offshore shareholders of Adani stock, Adani said it was “not concerned” about the company’s previous scandals, like the 1MDB fraud.

Further, we showed that the suspected stock parking entities engaged in wildly irregular trading, accounting for up to 30%-47% of delivery volume, essentially cornering the market in Adani shares.

In its response, Adani once again claimed complete ignorance as to its largest public holders and their trading patterns:

“Each of the entities referenced in queries above are public shareholders in the listed companies in the Adani Portfolio…we cannot comment on trading pattern or behavior of public shareholders.” [Pg. 47-48]

On Adani’s Legal Technicality Defense: It Strikes Us As Obvious That Vinod Adani Is A Related Party To The Adani Group

Adani focuses its argument on contesting the legal definition of ‘related party’ in India, claiming:

“Any mere close or business relationship of any promoter entity or their relatives does not make a transaction a related party transaction.” [Pg. 32]

Indian Accounting Standards specifically explain how the brother of an individual “may be expected to influence, or be influenced by” the individual for purposes of determining related party transactions.

(Source: The Indian Ministry of Corporate Affairs [Pg. 3])

By comparison, the Financial Accounting Standards Board (FASB) – recognizing the dangers of related party transactions for investors – simply says that “[m]anagement of the entity and members of their immediate families” are related parties.

We believe investors should regard Vinod Adani as a related party under either definition based on his (i) familial relationship with the Chairman and much of the senior management of the Adani Group (ii) his suspected significant undisclosed ownership of shares in Adani Group companies; (iii) his historical presence on the board of various Adani Group companies; and (iv) his extensive and irregular transactions with Adani.

In short, these transactions bear all the same potential risks and issues of any other related party transaction: non-arms-length transactions, corruption, conflicts of interest, stock manipulation and fraud – yet Adani claims investors are not entitled to know.

Of The Questions Adani Answered, They Largely Confirmed Our Findings, Argued Points We Didn’t Raise Or Sidestepped The Key Issues Altogether

Here we list several examples of responses that simply failed to address the questions we asked.

1. Our report included documentation from a 2007 SEBI ruling declaring that Adani promoters had aided and abetted infamous market manipulator Ketan Parekh in his manipulation of shares of AEL, the predecessor entity to Adani Enterprises. Per the SEBI ruling:

“The charges leveled against promoters of Adani that they aided and abetted Ketan Parekh entities in manipulating the scrip of Adani stand proved”. [Pg. 4] [Pg. 46]

We specifically asked, “How does Adani explain this coordinated, systematic stock manipulation in its shares, together with one of India’s most notorious convicted stock fraudsters?”

Adani responded by simply declaring the question to be “incorrect” without explanation, adding that the matter had earlier been settled.

2. Our report included evidence showing that SEBI investigated and prosecuted more than 70 entities and individuals, including Adani promoters, for manipulating Adani stock between 1999 to 2005. We asked for an explanation as to why Adani’s listed companies so regularly seem to be the subject of market manipulation investigations and prosecutions.

Adani’s response once again claimed it was not “aware of, nor are we required to be, aware of any proceedings against these other ‘entities and individuals’”. [Pg. 29]

We find it hard to fathom that Adani is completely unaware of the repeated allegations and prosecutions associated with the manipulation of its stock. This is especially the case considering the irregular and outsized performance of its listed companies relative to benchmarks and peers.

3. Our report included a question relating to Adani’s statement to regulators, claiming that Vinod Adani was (emphasis added) “not at all having any involvement in any Adani Group of companies”.

The question, which parallels issues that continue to this day, centered around whether the Adani Group had been forthright to the government about its dealings with Vinod Adani.

Adani’s response seemed to indirectly confirm that its statements to regulators were in fact false, adding qualifying language claiming that Vinod was not involved in “relevant” entities associated with the investigation, as opposed to the “any” it had claimed when asked by regulators (emphasis added):

“…the over-invoicing allegations for power imports pertains to the period between April 2010 till August 2014, during which period Mr. Vinod Adani was not even a director in any of the relevant Adani entities against whom such investigations were initiated”. [Pg. 29]

In reality, Vinod Adani was a director of Adani Group companies. Vinod Adani stepped down from Adani Global Pte in August 2010, Adani Shipping in April 2011 and Adani Power Pte in April 2011, according to Singaporean Corporate Filings. [Pg. 2, Pg. 3] This was during the period under investigation.

In short, it seems the Adani Group flagrantly misled government officials on one of the most important issues our report raised: its relationship with Vinod Adani.

4. We noted that listed Adani companies have paid INR 63 billion to private contractor PMC Projects over the past 12 years. We noted that the entity is controlled by the son of a close associate of Vinod Adani. We included Taiwanese media reports showing that the same individual controlling the entity is “Adani Group’s Taiwan representative”. We found pictures of him literally holding an Adani sign at an official government event, where he represented Adani.

Despite the controller of PMC projects clearly being an Adani representative, we found no related party disclosures about the massive payments to PMC Projects, which siphoned cash out of listed companies.

Adani simply didn’t respond to these questions, instead referring to documents from an earlier DRI investigation.

5. Our report showed that Mauritius shareholders had effectively bailed out Adani Green Energy and helped it avoid delisting by participating in 2 offer for sale (OFS) deals. We had asked Adani Group to detail the entities involved in these transactions by providing data from its weekly shareholding patterns. These patterns are available (although not publicly disclosed) for many corporates in India.

Rather than address this request, Adani simply regurgitated our analysis which indicates that offshore suspected stock parking entities did in fact participate in the deals.

This reinforces what we viewed as an almost statistical certainty: that the suspected stock parking entities participated in the deal and helped Adani Green avert a likely delisting.

We also note that the recent Follow On Public Offer (FPO) in Adani Enterprises contains many of the same type of Mauritius funds that we pointed out as likely being in clear violation of SEBI regulations.

For example, the anchor list of Adani Enterprises investors contains a host of suspect Mauritius funds. These include: (1) Ayushmat Limited (2) Coeus Global Opportunities Fund (3) Great International Tusker Fund and (4) Aviator Global Investment.

6. The Adani Group has not even attempted to clarify its relationship with a Chinese National (Chang Chung-Ling), despite a plethora of linkages. We had asked: What is the nature of Chang Chung-Ling’s relationship with the Adani Group, including his relationship with Vinod Adani?

This is an important matter, not only for shareholders but also India’s national interest because:

  1. An entity (Gudami International) run by Chang Chung Ling (aka Lingo Chang) was said to have been part of a massive corruption scheme in the AgustaWestland Scandal, one of India’s largest and ongoing bribery scandals.
  2. The son of Chang Chung Ling is the beneficial owner of the major contractor to the Adani Group called PMC Projects, mentioned above.

(Note: We will continue to update this list of issues over the course of the next several days as we scrutinize Adani’s response closer and continue our ongoing due diligence on the company.)

Conclusion: Adani’s Response Largely Confirmed Our Findings And Ignored Our Key Questions

Disclosure: We Are Short Adani Group Through U.S.-Traded Bonds And Non-Indian-Traded Derivative Instruments

Legal Disclaimer

We hold short positions in Adani Group Companies through U.S.-traded bonds and non-Indian-traded derivatives, along with other non-Indian-traded reference securities. This report relates solely to the valuation of securities traded outside of India. This report does not constitute a recommendation on securities. This report represents our opinion and investigative commentary and we encourage every reader to do their own due diligence. Use of Hindenburg Research’s research is at your own risk. In no event should Hindenburg Research or any affiliated party be liable for any direct or indirect trading losses caused by any information in this report. You further agree to do your own research and due diligence, consult your own financial, legal, and tax advisors before making any investment decision with respect to transacting in any securities covered herein. You should assume that as of the publication date of any short-biased report or letter, Hindenburg Research (possibly along with or through our members, partners, affiliates, employees, and/or consultants) along with our clients and/or investors has a short position in all stocks or bonds (and/or derivatives of the stock) covered herein, and therefore stands to realize significant gains in the event that the price of any security covered herein declines. Following publication of any report or letter, we intend to continue transacting in the securities covered herein, and we may be long, short, or neutral at any time hereafter regardless of our initial conclusions, or opinions. This is not an offer to sell or a solicitation of an offer to buy any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction. Hindenburg Research is not registered as an investment advisor in the United States or have similar registration in any other jurisdiction. To the best of our ability and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer. However, such information is presented “as is,” without warranty of any kind – whether express or implied. Hindenburg Research makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. All expressions of opinion are subject to change without notice, and Hindenburg Research does not undertake to update or supplement this report or any of the information contained herein.

[1] Adani seems unaware that Madoff lived in Manhattan, so he was quite literally his own Madoff of Manhattan.