Gautam Adani rose from a high school dropout to become the richest man in Asia, but now he sees his empire shaken by a week of turmoil.
The Indian tycoon lost his title and tens of billions in personal wealth in a matter of days after a US-based short-selling company accused him of “the biggest scam in corporate history”.
Adani rejected the allegations, accusing the short-seller, Hindenburg, of a “calculated attack” on his country.
But the claims have sent his company crashing and sent shockwaves through the markets.
On Thursday, Adani abandoned the planned stock offering from his flagship company as his conglomerate’s losses exceeded $100 billion, raising concerns about a possible broader impact on the Indian economy.
Here’s what you need to know:
What are the allegations?
Hindenburg Research released a report on Jan. 24 saying that the Adani Group, one of India’s largest conglomerates, had been “involved in brutal stock manipulation and accounting fraud over decades.”
The report was released just days before the planned $2.5 billion share sale by Adani Enterprises, the conglomerate’s flagship company.
In addition to accounting fraud, Hindenburg also accused the Adani Group of being involved in billions of dollars of “suspicious transactions with its chairman’s brother, Vinod Adani, and its labyrinth of offshore shell entities,” which the company says it used for stock manipulation.
Hindenburg has a track record of exposing alleged corporate misconduct in placing bets against these companies, a process known as short selling. Hindenburg disclosed that it had short positions in Adani’s companies through US-traded assets and non-Indian-traded derivatives. what experts said positioned to benefit from a fall in share prices.
The report, which Hindenburg says was based on interviews with former executives and research from thousands of documents, raised concerns about high debt and the activities of top executives and concluded that seven of Adani’s companies were overvalued.
What did Adani say?
Adani’s company hit back at Hindenburg, threatening legal action and accusing it of sabotaging the stock sale.
“The volatility in Indian stock markets caused by the report is of great concern and has generated unwanted fear for Indian citizens,” the conglomerate said in a statement last week.
In another 413-page response a few days later, Adani dismissed Hindenburg’s accusations as baseless, calling the short-seller the “Madoffs of Manhattan.”
“This is not just an unwarranted attack on a specific company, but a calculated attack on India, the independence, integrity and quality of Indian institutions, and India’s growth story and ambition,” said Adani’s statement.
Hindenburg replied that only about 30 of those pages addressed issues raised in his report, and that Adani failed to answer 62 of his 88 questions.
“India’s future is held back by the Adani Group, which has draped itself in the Indian flag as the country is systematically looted,” the research group said. “We also believe that fraud is fraud, even if it is committed by one of the wealthiest individuals in the world.”
Hindenburg Research and the Adani Group did not respond to a request for additional comment.
How bad was the damage?
While Adani denied the allegations, the report resulted in a massive sell-off of shares in the Adani Group’s publicly traded companies, which Bloomberg says has lost $107 billion in value.
Adani himself has lost $48.5 billion of his $120 billion fortune, according to the Bloomberg Billionaires Index, where he has dropped from third on the list to 13th. He has also dropped one spot below his rival and fellow Indian tycoon Mukesh Ambani, the chairman of Reliance Industries.
Record domestic stock sales were seen as a measure of market confidence in Adani after the report and initially had enough investor support to continue Tuesday. But the conglomerate shut down late Wednesday, citing “market volatility”.
“This decision will not affect our existing operations and our future plans in any way,” Adani said in a taped video speech designed to appease investors released Thursday, his first public remarks since the crisis began.
Adani said the decision to cancel the stock offering was made “to protect the investors from potential losses”.
“For me, the best interests of my investors are paramount and everything else is secondary,” he said. “We will continue to focus on timely execution and delivery of projects,” he said.
But the damage may have been done. Since the Hindenburg report was released on January 24, the Adani group companies have lost nearly half of their combined market value.
“Unless Adani manages to regain the trust of institutional investors, the stock will go into free fall,” Avinash Gorakshakar, head of research at Mumbai-based Profitmart Securities, told Reuters.