Companies in billionaire Gautam Adani’s conglomerate lost as much as $13.4 billion in market value on Monday, before partly recovering some of the losses, as investors reacted to a new report from US short-seller Hindenburg Research.
In the report released on Saturday, Hindenburg alleged that the head of India’s market regulator had links to offshore funds also used by Adani.
The group, citing whistleblower documents, said the chief of the Securities and Exchange Board of India, Madhabi Puri Buch, had a conflict of interest in the Adani controversy due to previous investments by her and her husband in offshore funds also used by the Adani Group.
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The Bermuda-based Global Opportunities Fund, which the Financial Times previously said was used by entities connected to Adani Group to trade in shares of group companies, had sub-funds, Hindenburg alleged.
Buch and her husband invested in one of these sub-funds in 2015 and exited in 2018, it added.
Citing those links, the short-seller raised questions around the slow pace of SEBI’s investigation into the Adani Group over the first Hindenburg report, which accused the conglomerate of improperly using tax havens and manipulating its stock prices.
“We do not think SEBI can be trusted as an objective arbiter in the Adani matter,” Hindenburg said.
“We find it unsurprising that SEBI was reluctant to follow a trail that may have led to its own chairperson.”
Buch condemns ‘character assassination’
Buch, who has been SEBI chief since 2022, termed Hindenburg’s allegations as an attempt at “character assassination”
“Our life and finances are an open book,” Buch and her husband said in a statement.
“It is unfortunate that Hindenburg Research against whom SEBI has taken an enforcement action and issued a show cause notice has chosen to attempt character assassination in response to the same.”
A show cause notice signals an intention to take disciplinary action if satisfactory explanations are not provided.
SEBI also asked investors to remain calm and exercise due diligence before reacting to reports such as those by Hindenburg.
The Adani Group rejected the allegations as well on Sunday and said its overseas holding structure was fully transparent. Hindenburg was selectively using publicly available information to support predetermined conclusions for personal gain, it added.
That, however, did not prevent investors from pulling out from the group’s shares in the early hours of trading on Monday.
‘Knee-jerk reaction’
At 0850 GMT, the group’s flagship firm Adani Enterprises had fallen 1.5%, while Adani Ports, Adani Total Gas, Adani Power, Adani Wilmar and Adani Energy Solutions fell between 0.5% and 3.8%. Adani Green was up 0.3%.
Total losses for the day at that time amounted to about $2 billion after the early plunge.
Later in trade, Adani Power went on to plunge nearly 11%, Adani Energy Solutions slumped 17% and Adani Total Gas fell 13%, while other shares of the group also extended those losses.
However, at the close of trade, all firms — and India’s benchmark indexes Nifty 50 and BSE Sensex — recouped most of those early losses.
“The allegations are coming for the second time. Lot of investigations have happened over the last year and a half. This is a temporary, knee-jerk reaction. Things will get back to normalcy,” Sunny Agrawal, head of fundamental equity research at SBICAPS Securities, said.
SEBI Chairperson Madhabi Buch’s response to our report includes several important admissions and raises numerous new critical questions.
(1/x) https://t.co/Usk0V6e90K
— Hindenburg Research (@HindenburgRes) August 11, 2024
Buch’s response now publicly confirms her investment in an obscure Bermuda/Mauritius fund structure, alongside money allegedly siphoned by Vinod Adani. She also confirmed the fund was run by a childhood friend of her husband, who at the time was an Adani director.
SEBI was…
— Hindenburg Research (@HindenburgRes) August 11, 2024
Billion-dollar share sale
Adani Group stocks had lost $150 billion in value after Hindenburg’s first report in January 2023 but shares have recovered much of the losses since then.
The latest allegations from Hindenburg come at a time when Adani Enterprises is looking to launch a $1-billion share sale by mid-September. Adani Energy raised $1 billion from US investors and sovereign wealth funds earlier this month.
In January 2023, Adani Enterprises had shelved plans for a record $2.5-billion share sale following the first set of allegations by Hindenburg.
“We will likely see a short-to-medium term sentiment impact on Adani stocks, especially as retail investors are pressurised by the allegations made against SEBI,” Kranthi Bathini, director of equity strategy at WealthMills Securities, said.
In a separate statement SEBI chief Buch said all of Hindenburg’s allegations against the Adani Group had been duly investigated.
Politcal swordplay
Critics of Adani and the current Indian leader Narendra Modi say the billionaire remains shielded from a thorough investigation due to his close links with the prime minister.
That sentiment echoed following Hindenburg’s latest allegations, with many Indian investors speculating they wouldn’t amount to any action, yet again.
Meanwhile, India’s Opposition leader Rahul Gandhi — who has been a loud critic of Adani and also questioned Modi’s ties with the oil-to-ports baron — did not miss the Hindenburg report.
“The integrity of SEBI, the securities regulator entrusted with safeguarding the wealth of small retail investors, has been gravely compromised by the allegations against its chairperson,” Gandhi wrote in a post on X.
Opposition leaders also called for a probe into the allegations.
In response, ruling Bharatiya Janata Party lawmaker Ravi Shankar Prasad said: “Instead of giving a response to the SEBI show cause notice, Hindenburg has issued this report, which is a baseless attack.”
“The SEBI and the family (of Buch) have responded, we don’t have anything to add to that,” he told reporters.
- Reuters, with additional inputs and editing from Vishakha Saxena
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