Short seller activist Hindenburg Research has published a report presenting allegations that Adani Group has been engaging in stock manipulation and accounting fraud over the course of decades, as reported by Benzinga India earlier.

Here are the details of what these allegations involve.

Leading from the front: Hindenburg investigated the group — led by India’s richest and world’s fourth person Gautam Adani — and its subsidiaries for two years to arrive at a conclusion that Adani had amassed a net worth of roughly $120 billion (₹ 9,80,392 crore), largely through stock price appreciation in the group’s seven key listed companies which have spiked an average of 819% in the last three years.

Gautam Adani, Founder & Chairman of Adani Group, has amassed a net worth of roughly $120 billion, adding over $100 billion the past 3 years largely through stock price appreciation in the group's 7 key listed companies, which have spiked an average of 819% over the period. (3/x) pic.twitter.com/5ph5rYeFTH

— Hindenburg Research (@HindenburgRes) January 25, 2023

The agency also cited an independent report by financial research firm CreditSights, published in August 2022, which had called the Adani Group "deeply over-leveraged" and suggested it could "unravel Adani's vast business empire".

The report was later "toned down" after CreditSights representatives met with the company.

‘Don’t Take Our Word For It’: To emphasise its point the firm says that it sees an 85% downside from current valuations for the seven listed Adani firms, based purely on a fundamental basis owing to “sky-high valuations”. With a collective market capitalisation of ₹17.8 lakh crore, Adani Group is the second largest conglomerate in India, after Tata Group.

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Pledging Shares: The report says that a list of Adani companies have also attracted considerable debt, including pledging shares of their inflated stock for loans.

“5 of 7 key listed companies have reported ‘current ratios' below 1, indicating near-term liquidity pressure," Hindenburg states in the report.

The research firm said it spoke with numerous people that include former senior executives at Adani Group as part of its scrutiny, and reviewed thousands of documents, conducting diligence site visits to several countries.

Family Affair: A former executive of the company went on to tell Hindenburg that the reigns of the company remain largely within the family — a statement that, it said, is highlighted by the fact that the Adani Group's 22-person leadership team features as many as eight members of the Adani family.

Shell Companies: Among the said eight family members is Gautam Adani's younger brother, Rajesh Adani, who was accused by the Directorate of Revenue Intelligence (DRI) of playing a key part in a diamond trading import/export scheme which dates back to 2004-2005. The alleged scheme involved the use of offshore shell entities to generate artificial turnover, according to Hindenburg.

Rajesh was arrested at least twice over separate allegations of forgery and tax fraud. He was subsequently promoted to serve as Managing Director of Adani Group, it said.

Meanwhile, Vinod Adani, Gautam Adani’s elder brother, manages a vast mishmash of offshore shell entities through several close associates, according to the short seller.

Tax Haven: Hindenburg said it identified 38 Mauritius shell entities controlled by Vinod Adani or close associates, and entities that are also purportedly surreptitiously controlled by Vinod Adani in Cyprus, the UAE, Singapore, and several islands in the Caribbean.

We also uncovered efforts that seem designed to mask the shell entities. 13 websites were created for Vinod-associated entities; many were suspiciously formed on the same days, featuring only stock photos, naming no employees & listing the same set of nonsensical services. (17/x) pic.twitter.com/921Cw2DTya

— Hindenburg Research (@HindenburgRes) January 25, 2023

Many of the Vinod Adani-associated entities have no obvious signs of operations, including no reported employees, no independent addresses or phone numbers and no meaningful online presence. Despite this, they have collectively moved billions of dollars into Adani Group’s publicly traded establishments.

Accounting inefficiencies: Deeper research into Adani Group’s accounts also highlights major irregularities per Hindenburg. “The independent auditor for Adani Enterprises and Adani Total Gas is a tiny firm called Shah Dhandharia. Shah Dhandharia seems to have no current website. Historical archives of its website show that it had only 4 partners and 11 employees,” notes the report, underscoring the firm’s likely preparedness to audit the finances of Adani's listed entities which collectively have 578 subsidiaries.

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