-By Ananya
INTRODUCTION
Since the Hindenburg Report January 2023, alleging the Adani Group of stock manipulation and accounting fraud, it has been at the centre of financial and legal scrutiny. The recent development of US authorities pressing bribery charges on Gautam S. Adani, Sagar Adani, and other Adani Group executives has caused tensions to resurface. On November 21, in a press release declared that the U.S. DoJ(Department of Justice) authorities have pressed charges against the Adani group involving a bribery scheme scandal of $265 Million(about Rs 5,064 crore) aimed at securing solar energy contracts. These allegations, along with the series of allegations on the Adani Group by Hindenburg, have cast a shadow over the conglomerate's global operations and market reputation. It has also led to some interesting insights in the stock market and heavily impacted the investor sentiment in the country. This report is a run down of the Adani case study, covering the Hindenburg Report and its following implications, the US bribery charges, the allegations and the group’s response, its financial ramifications and what it could mean for the Indian Market’s reputation as a whole.
BACKGROUND
On 24thJanuary 2023, the US based short seller Hindenburg Research came out with a report alleging The Adani Group of “brazen stock manipulation and accounting fraud scheme over the course of decades”. It said that the Adani Group’s chairman Gautam Adani has added more than $100 billion in past three years, largely through “stock price appreciation in the group’s 7 key listed companies, which have spiked an average of 819% in that period. As a result of this report, Investors suffered a huge loss of Rs 7,00,000 crore ($ 82.9 billion) in ten Adani group companies. Adani stocks were battered for over a month leading to a fall of $140.1 billion to $80.67 billion in market capitalization of Adani companies by February 27, 2023. However, it recovered gradually even as GQG invested over Rs.15,000 crore in Adani companies and the total investor wealth rose to a high of $229.86 billion by June 3, 2024. Refer to these charts to understand the stock condition better. The share price value of Adani Enterprises fell from 3434.5 Indian rupees on January 23 to 1404.85 on February 22.
This severe decline in stock prices started seeing signs of recovery by March due to the strategic actions of the group.
Debt Reduction: The Adani family prepaid $2.15 billion in loans, reducing the pledged shares and boosting market confidence. The group's net debt-to-EBITDA ratio improved from 3.3 in March to 2.5 by September 2023.
Major Investments: GQG Partners invested nearly $5 billion in Adani companies, showing renewed investor interest. Other marquee investors, including the Qatar Investment Authority and TotalEnergies, also increased their stakes.
Infrastructure Strength: Adani's control over critical infrastructure, such as ports, airports, and renewable energy projects, reinforced its role in India's economic growth, which further encouraged long-term investors.
Regulatory Developments: Indian Supreme Court rulings rejecting some investigative appeals and increased transparency efforts helped ease concerns among stakeholders
By the end of 2023, the Adani Group companies had rebounded and made a 112% recovery from their February lows.
THE U.S. ALLEGATIONS
On November 21, in a Press Release by the US Authorities, they charged Gautam Adani and his Nephew Sagar, and some other associates with charges of defrauding American investors, promising and paying bribes worth $265 million to the government officials in India for solar energy contracts. According to this US indictment, Adani misled U.S. investors with falsified documents and concealed transactions while raising funds over several years. The scheme allegedly involved more than $2 billion raised through loans and bonds, some of which were from American financial institutions. The charges against Adani include securities fraud, while others were like Ranjit Gupta and Rupesh Agarwal, former executives of a renewable-energy company with securities that had traded on the New York Stock Exchange (the U.S. Issuer), and Cyril Cabanes, Saurabh Agarwal and Deepak Malhotra, former employees of a Canadian institutional investor, were charged with conspiracy to violate the Foreign Corrupt Practices Act, which outlaws bribing foreign government officials. Prosecutors claimed Adani himself met an official in the Indian state of Andhra Pradesh to “advance” the plan. The Adani Group is also under scrutiny for failing to disclose the ongoing investigation to US and Indian investors, as well as Indian Exchanges and SEBI. The company has been accused of denying knowledge of the investigation while providing misleading information to investors. The DOJ indictment unsealed on Wednesday alleges that Adani Green Energy concealed an ongoing investigation against its senior executives and falsely claimed to Indian stock exchanges that it had no knowledge of such an inquiry.
THE RESPONSE
The Adani Group responded to these allegations by issuing a Media statement denying the charges brought by the DOJ and the Security Exchange Commission (SEC) and describing them as “baseless”. They said they would pursue all available legal avenues to contest their claims. As an obvious consequence to this incident, the stock prices of their group’s companies, including Adani Green Energy, Adani Enterprises and Adani Ports started witnessing fluctuating stock prices. Let’s discover the market impact and other major consequences of this indictment in the next section.
FINANCIAL RAMIFICATIONS
In addition to the fluctuating share market prices,
- Kenyan President William Ruto ordered the cancellation of a process to hand control of the country’s main airport to the Adani group and also junked a $736-million public-private partnership deal with an Adani group firm to construct power transmission lines.
- Adani Green Energy Ltd withdrew its proposed $600 million U.S. dollar denominated bond offering after the charges.
- On the day of this release, a selloff in Adani Group stocks led to a sharp decline in the net worth of the Gautam Adani family. The Adani family's net worth was down 20.1 per cent on Thursday to around Rs 7.8 trillion from Rs 9.8 trillion on Tuesday.
- On November 21, investors' wealth plummeted by 2.22 lakh crore as investors dumped Adani stocks, leading to a loss of up to 23 per cent in these stocks, following the development in the US court.
Shares of Adani Group companies plunged by as much as 20% on November 21 alone.
Moreover, the Adani Group companies lost about $28 billion in market value in morning trade on 21st November, 2024.
Adani Green Energy Ltd share prices within one week of the release
Adani Enterprises Ltd share prices within one week of the release
Experts say that since the group has been very volatile over the last two years and several adverse reports have led to sharp decline in share prices of the group companies, investors should look for exposure in more stable entities. When considering investing in Adani group companies, market participants recommend retail investors to focus on those businesses that are stable and are generating good cash flows. ( Infact , the candlesticks have gone from being constantly red for about a week to being green since I have started writing the report. Who knows what state the prices would be at by the time this report is published. Bottom line, market sentiments are definitely getting tougher to predict.)
BROADER IMPLICATIONS
It is worth acknowledging that these allegations were not put forward by a short seller or institution like Hindenburg, it is from a sovereign government this time. Hence, the consequences of this incident might be more severe than any others. Although, the warrant is not binding on India, so the chances of the accused getting arrested for the charges are unlikely but this would definitely probe SEBI to launch investigations and enquiries and possibly impose some bans on the company. The group would likely stop acquiring strategic assets overseas until the verdict is clear. Acquisitions in India might see a setback as well. This could also have a grave impact on the political scenario. The most obvious one being the opposition's uproar targeting the government for having closer ties with the alleged group. The US Authorities could summon the government officials, since the Foreign Prevention Act has been applied and there is a mentioned involvement of government officials in the bribery fraud. The stock market has started showing early signs of recovery but is highly volatile subject to the later developments in the Adani-US DoJ case.
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