In this episode, we take a look at the Adani vs Hindenburg scandal. What happened, and how could a company lose $130 billion in a matter of days over a few tweets? Was what Hindenburg did legal? In this episode we'll cover all of this. 

PS: I was sick through half of this recording, so ignore the voice change, I'm only human.

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Hi, welcome to another episode of ColdFusion.

On the list of billionaires, there's 1 name that's unknown to many.

Gautam Adani, chairman of the Indian conglomerate Adani Group.

He was the third richest person on the planet, briefly touching second place.

And yet, his rise to the top has been accused of being built on a grand deception.

It's being dubbed the greatest corporate con of all time.

That's the claim of Hindenburg Research, the famous short-selling firm who exposed the fraud of Trevor Milton at the Nikola Motors company.

When Hindenburg broke the news on January 24th through a Twitter thread, $50 billion was wiped out from the Adani fortune in 1 day.

His companies have lost $136 billion in total at the time of recording.

But what's the truth behind these accusations?

Is Gautam Adani really the mastermind behind a massive corporate fraud?

This is the story about an alleged criminal family, nepotism, stock and accounting fraud, political favoritism and even a spat between the Indian government and the infamous billionaire George Soros.

Today we'll take a deep dive into the Adani group, its dizzying ascent to the top and its fall from grace.

When the pandemic hit the world, Gautam Adani's personal wealth stood at a meager $10 billion.

In just 3 years, Adani added $100 billion to his fortune.

According to the Forbes Billionaire Index, as of September 2022, he was just behind Elon Musk with a net worth of $145 billion.

This made him the third richest person in the world and Asia's first richest.

But who is he and how did he rise to the upper echelons of world billionaires?

He was born in 1962 to a middle-class family.

He was 1 of 7 siblings in the Indian state of Gujarat.

From an early age he had a knack for business.

At age 16 he dropped out of school and moved to Mumbai to try his hand at diamond trading.

After a couple of years in 1981 he would return to his home state of Gujarat.

There he managed a packing factory run by his brother.

This small event would turn out to be Adani's gateway to global trading.

He would start his own venture in 1988 with the establishment of Adani Export.

This is now known as Adani Enterprises, the flagship company of the Adani Group.

This company quickly established itself as India's biggest coal trader and mining contractor.

Economic liberalisation policies in the 1990s allowed Adani to expand.

They moved into trading metals, textiles and agricultural products.

2 key ventures helped cement his place in the Indian business landscape.

1 happened in 1995 with the acquisition of the Mandra Port.

This port in Gujarat was later renamed Adani Ports and Special Economic Zone Limited.

It would become the largest private port in the whole of India.

The second key venture was the establishment of Adani Power in 1996.

It is now the largest thermal power producer in the country.

Since then, the group has grown from strength to strength.

Adani is now India's infrastructure mogul.

The group runs 13 ports and operates 7 airports.

With 6 coal-fired power plants, they are the largest private player in the energy sector.

The group is also the leading producer of solar panels, the top importer of edible oil, and the largest supplier of gas to cities.

They even built their own private railroads and power lines.

In more recent years, They branched out into data centres, financial services, digital services, real estate, cement and media.

Needless to say, they do a lot of things.

During their growth, the Udani group was in the right place at the right time, Because the Indian government was striving for increased infrastructure development, this made them great partners.

However, the relationship between Gautama Dhani and Indian Prime Minister Narendra Modi has always been controversial.

Both of them are from the same state, Gujarat, and the connection between them dates back to Mr Modi's days as state minister in the 1990s.

Multiple media outlets in India suggested that Adani benefited greatly because of this.

In 2018, the Modi government made a significant move into the natural gas industry.

Adani Group was 1 of the biggest winners, obtaining 25 bids out of 126.

Also in 2018, the privatization of 6 airports raised eyebrows.

Adani won all 6 leases without any prior experience in the sector.

Overnight, they became 1 of the biggest private airport operators in India.

This clean sweep was met with outrage and accusations of cronyism.

Adani was essentially acting as the infrastructure arm of the Indian government.

When you look at the individuals who are running the company, things get pretty shady.

The Adani group continues to be a family affair even though it employs more than 23, 000 people worldwide.

8 members of the Adani family make up the 22-person leadership team.

This group is known for making unilateral decisions, often shrouded in secrecy.

Adani family members have also been involved in illegal activities within the group.

The chairman's younger brother, Rajesh Adani, has been charged with planning a diamond trading scheme between 2004 and 2006.

He allegedly faked offshore companies to make his business look like it was doing better than it actually was.

At the time, Rajesh was the managing director of Adani Exports, later renamed Adani Enterprises.

He was also arrested for evading customs tax, forging import documents and illegal imports.

Now, you'd think after all of this, he'd be fired from his company and banished.

Rajesh got promoted to the position of Managing Director of the Adani Group.

Gautam Adani's brother-in-law, Samir Vora, was charged with being the ringleader of the same diamond trading scam.

Vora was also accused of making numerous false statements to regulators.

In 2017, in a similar fashion, he was rewarded for his efforts and promoted to the Executive Director of Adani Australia.

If those delightful individuals and management weren't enough of a red flag, the Adani group would later be charged with multiple counts of corruption, money laundering and embezzlement totaling $17 billion in taxpayer money.

But investigations have been stalled or blocked by the Indian government.

Ironically, the Adani company's tagline is growth with goodness.

All of this wouldn't matter though, because Adani would soon be enjoying sky-high market valuations.

The Adani Group has 7 key publicly listed companies.

From 2020, the stock prices of these companies have rallied between 250% to 4, 100%.

Meanwhile, the combined market cap for the group's companies has risen from $16.4 billion to $254 billion in the same time period.

Infrastructure companies and capital-intensive companies tend to have slow growth.

Yes, there had been price hikes in commodities such as coal, oil, electricity and gas.

But a 4, 100% increase in 1 of their companies, that sounds more like a cryptocurrency, not a firm dealing in infrastructure.

And even if you take into account the fact that the Adani businesses are perfectly aligned with the government's vision, these absurdly high valuations don't really make much sense, especially from a value investment point of view.

As Warren Buffett once said, quote, for the investor, a too high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.

Some analysts assumed that there was a market frenzy over Adani stocks.

Some people saw it going up and more people just piled in.

Others think that the group is just too big to fail, forgetting about the checkered past of companies who are also overvalued but ended up failing anyway.

Regardless, the Adani group continued to enjoy its meteoric rise.

A man by the name of Nathan Anderson had been watching all of this from the sidelines, and he thought that something didn't add up.

He found that the company's growth was unbelievable without some kind of fraud.

It was a logical hunch, as the management team behind Adani proved to be less than clean.

Nathan, who had been mentored by Harry Markopoulos, who brought down Bernie Madoff, founded the New York-based short-selling firm Hindenburg Research.

Hindenburg began looking into the details of Adani.

They talked to insiders and former associates to build a case against them.

When they had that case, just with a series of tweets, Nathan and his company was about to bring down the Adani empire.

On January 24th, the company's Twitter account accused Adani of widespread stock manipulation, overvaluation and accounting fraud that has been going on for decades.

They called it the largest corporate fraud in history.

Hindenburg claimed that the Adani family created a complex scheme.

It involved setting up offshore shell companies and round-tripping cash to artificially inflate stock prices.

Now, before I continue, I'd like to remind you that these allegations haven't been yet proven in a court of law.

Hindenburg also benefits from a stock price collapse because they short sell.

This means that they make money when they're betting on a stock price to go down, so take everything with a grain of salt.

That being said, given their track record of bringing down Trevor Milton and getting him prosecuted and charged for fraud, it's worth talking about some of the allegations made against Adani.

Indenburg alleges that the Adani management holds 75% of their own stock.

This means that technically they could control the supply and manipulate the price if they wished.

For context, Zuckerberg owns 13.6% of Meta and Jeff Bezos 10% of Amazon.

As per Indian regulations, there are 4 Adani listed companies effectively on the verge of breaking the financial rules of the country.

Allegedly, there are large offshore companies in tax haven jurisdictions such as Mauritius and Cyprus, and these shady companies hold a bunch of Adani shares.

And it's not unusual, and it happens, but the only problem here is that there's no information online or news articles about any of their investments.

They only seem to invest in Adani companies.

As per the report, these multiple offshore entities hold $7 billion worth of Adani shares.

Hindenburg labelled these companies as stock parking entities.

1 such company is Monterosa Investment Holding.

This company controls 5 entities and has collectively invested $4.5 billion in Adani Group.

A number of other companies are also involved in a similar scheme, such as Mauritius-based Alara Capital and Cyprus-based New Leena Investments.

Guatemadani's elder brother, Vinod Adani, is mysterious and plays a very secretive role in the group, as per Indian media.

He even appeared in the Panama Papers a few years back.

Hindenburg Research found that he and his associates set up at least 38 Mauritius-based shell companies.

Some other businesses are in the UAE, Singapore and the Caribbean.

Often these companies have tried to conceal their fronts through fake websites.

There are many suspicious transactions between these companies that appear to only benefit the Adani enterprise.

The report raises some questions about where Vinod got his money.

Another separate Forbes article came out stating that a Singaporean entity controlled by Vinod took a loan for $240 million from a Russian bank and the Adani group didn't disclose this information.

It's alleged that only 10% of Adani stock is publicly traded.

The combination of these fake companies and a 75% stock ownership means that the demand can be pumped up and the Adani family gets a lovely paper wealth payout.

Hindenburg claims that these offshore funds are indirectly controlled by the Adani group, so allegedly they're buying their own stock with fake companies to push up the price and play a role in accounting fraud.

The Adani Group is no stranger to stock manipulation.

The group has said to be involved in numerous stock rigging scams over the last 2 decades and have had 60 regulatory investigations.

From 1999 to 2001, Adani was involved in 1 of the largest stock market scandals, affectionately dubbed the Bernie Madoff scandal of India.

The man who carried this out was a stock broker by the name of Ketan Parikh and Adani was 1 of his high-profile clients.

Ketan was banned from the market for 14 years for the rigging of the price of 10 stocks including Adani exports.

Adani Group's private companies were also barred from dealing in securities for 2 years and were also charged with aiding and abetting Parack and his scheme.

Ketan Parack was arrested twice but managed to bail out both times.

He allegedly relocated his operations to London and Hindenburg alleges that he's still working for the Adani group.

Ketan's daughter's LinkedIn profile shows that she worked at Alara Capital which holds almost exclusively Adani stocks.

The Adani family is also accused of using their own shares as collateral for loans and additional share purchases made through the fake corporations.

This inflates the value of the shares and leads to further borrowing.

It's like an infinite money glitch, only that it's illegal.

A debt to income ratio of 100 means that your company is up to its eyeballs in debt.

Hindenburg claims that 5 out of the 7 Adani listed companies don't have enough assets to cover their debt.

And this isn't really surprising because Adani has about 24 billion dollars in debt.

The other problem is that with rising interest rates this massive borrowing can be a huge problem.

Since the companies within the Adani group are interconnected, a liquidity crisis in 1 company could have a negative impact on the entire group.

In short, it seems like the whole scheme of massive borrowing was on borrowed time anyway.

Hindenburg also asserted that Adani's companies have sky-high price-to-earnings ratios.

This is how much a stock is worth in relation to how much money the company makes.

The Adani Green Energy Company has a P-E ratio 815 times higher than the industry average.

But playing devil's advocate for a second, the price of any stock can technically be high for any reason.

For example, Adani Green Energy follows the Environmental, Social and governance criteria, or ESG for short.

This makes the company attractive to international investors.

You see, some governments around the world mandate that investment funds put their money into ESG causes.

Now Adani Green Energy was skyrocketing in price, so it would have been a no-brainer to invest.

In fact, 500 EU funds had invested directly or indirectly in Adani stocks to meet their mandates.

Yeah, the Adani crisis has been a real wake-up call for ESG investors.

It's just another kind of way that we've been looking at this crisis?

Yeah, this is sort of the flip side of the issue here.

You do have that investment story, the investment thesis, but the real issue comes to when you look at the collateral web for companies in the Adani group because this presents the real headache for any sort of ESG investor out there.

Norway's largest pension fund, this is KLP, it's probably a good example of this because it was recently forced to dump its entire holding of shares in Adani Green Energy.

The thing is, it later came to light that Adani was using their green energy stocks as collateral for loans for their coal and iron ore operations in Australia.

Many companies dumped the stock, reducing their holdings as a result, so even that explanation doesn't really hold anymore.

But regardless, all of these accusations by Hindenburg was an absolute grenade to the Adani empire.

Following the release of the Hindenburg report, Gautam Adani lost $50 billion.

In the following week, all Adani listed companies lost 43% of their market cap.

This translates to a loss of $100 billion.

Since that time, a further $30 billion has been lost.

In just 21 trading sessions, the maximum wealth erosion of the group, stocks, has actually been seen in Adani Total Gas, which has seen a market cap loss of 77% in this entire period, followed by Adani Green and Adani Transmission, both of which have also lost over 70% of the market cap in the same period that we're talking about.

While the flagship firm Adani Enterprises lost 54% of value or 2.1 lakh crore rupees that we have seen as a loss in this period.

Now, in all, the group has seen a market cap erosion of

Now, this is despite the fact that Adani group is now prioritizing financial health over aggressive debt-fueled expansion spree of the recent years.

The group's focus has now shifted to cash conservation, debt repayment and recovering of the pledged shares as well.

Adani's immediate future plans and ambitions also took a huge hit.

Many large investors, such as Morgan Stanley, have cut back their investments completely and dumped all Adani Company stock holdings.

As for Gautam Adani, he's lost his seat as the richest man in India.

He still remains a billionaire, currently ranking seventh according to Forbes.

The report is a malicious combination of selective misinformation, stale, baseless and discredited allegations that have been tested and rejected by India's highest courts.

The fundamentals of our company are very strong, our balance sheet is healthy and assets robust.

At the end of the report, Hindenburg posed 88 questions for the Adani group to answer.

In response, Adani group released a rebuttal of 413 pages.

They denied all allegations and said that the report was a calculated attack on India's economy.

The market wasn't buying it and the stock continued to fall.

Hindenburg hit back, saying that Adani dodged a lot of questions and said that some of what was in the Adani rebuttal confirmed parts of the original allegations.

Then suddenly, out of nowhere, the 92-year-old infamous billionaire George Soros comes out with some scathing remarks.

This was when he was speaking at the Munich security conference.

He also said that the allegations against Adani would create the beginning of a democratic revival in India.

Now it's clear that George Soros isn't internationally loved, but I'm just going to leave that up to you to make sense of that statement.

Irani, hit back with an aggressive attack on Soros, giving the message to Indians to unite in large numbers.

The external foreign affairs minister called Soros old, rich, opinionated and dangerous.

He also accused him of interfering in India's domestic politics.

At this moment, the Indian securities regulators are investigating the drop in Adani Group's shares.

They're also looking into possible irregularities.

The Reserve Bank of India has asked Indian banks to provide details of their exposure to the Adani Group.

Global bankers such as Credit Suisse and Citigroup have stopped accepting Adani bonds as collateral for margin loans.

Meanwhile, Adani is planning a comeback, pledging to cut their spending and get their finances in order.

And this is to gain financial confidence back.

We'll have to wait and see if this works.

And we'll have to see the conclusion of the Indian investigations.

And of course, the decision of the courts will determine how severe the long-term damage to Adani will be.

But with that said, seeing the close ties between the Adani group and the Indian government, the investigations may not be as effective as 1 would like.

But long story short, Adani is going through a rough time.

The rapid expansion of Adani Group has paralleled India's growth in recent years.

Some say that the group's concentration of economic power can fast-track India's development.

They're probably trying to take a page of the Chayabal families of post-war South Korea.

But this type of monopoly can lead to stifled competition and economic vulnerability.

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Adani: A $130 Billion Scandal