Hindenburg shorts the Adani Group of India, citing debt and accounting issues

In announcing its short holdings in Adani Group on Wednesday, Hindenburg Research accused the Indian conglomerate of employing firms formed in offshore tax havens extensively improperly and expressed concern about the company’s high debt levels.

The firm, which is led by Gautam Adani, who is ranked as the third-richest person in the world by Forbes, rejected the U.S. short-allegations sellers as unfounded.

Shares of Adani group companies fell precipitously in response to the research, which was released only days before the flagship company Adani Enterprises’ ($ADEL.NS) $2.5 billion share offering.

The primary listed firms in the group, according to Hindenburg, which have short positions in Adani companies through U.S.-traded bonds and non-Indian-traded derivative instruments, have “significant debt” that has put the entire group on a “precarious financial footing.”

As a result of what it called “sky-high valuations,” it also claimed that seven Adani-listed firms have an 85% downside on a fundamental basis.

Jugeshinder Singh, the chief financial officer of Adani Group, expressed amazement at the findings in a statement and described it as a “malicious combination of selective falsehoods and outdated, unsubstantiated, and debunked charges.”

It went on to say that the timing of the report’s release “clearly shows a flagrant, mala fide purpose to harm the Adani Group’s reputation with the primary objective of hurting the impending follow-on Public Offering from Adani Enterprises.”

The Group has consistently complied with the law.

Hindenburg claimed that its analysis was based on a two-year research that comprised speaking with numerous people, including former Adani Group executives, and document inspection.

The Securities and Exchange Board of India, which oversees India’s capital markets, did not immediately respond to a request for comment.

Debt issues have been consistently disregarded by Adani. Singh spoke to the media on January 21 “Nobody has expressed worry to us about debt. None, not even one investor.”

Shares of Adani Ports and Special Economic Zone (APSE.NS) dropped 7.3% to their lowest point since early July on the release of the Hindenburg report. Adani Enterprises experienced a 3.7% decline to close to a three-month low.

Cement businesses held by Adani, ACC (ACC.NS), and Ambuja Cements (ABUJ.NS), which it bought from Holcim (HOLN.S) of Switzerland last year for $10.5 billion, slumped 7.2% and 9.7%, respectively, on Wednesday.

According to Hindenburg’s research, five out of seven significant listed Adani companies had current ratios below 1, which is a measurement of liquid assets minus short-term liabilities. This implied “a heightened short-term liquidity risk,” according to the short seller.

The entire gross debt of the Adani Group increased by 40% to 2.2 trillion rupees in the fiscal year that ends on March 31, 2022.

According to Refinitiv data, debt at the seven major Adani Group firms that are publicly traded is higher than equity, with debt at Adani Green Energy Ltd (ADNA.NS) exceeding equity by more than 2,000%.

Last September, CreditSights, a division of the Fitch Group, labeled the organization as “overleveraged” and expressed alarm over its debt. CreditSights claimed that after a correction to some calculation errors in the report, it still expressed worries about Adani’s leverage.

Known for shorting Twitter and Nikola Corp (NKLA.O), two companies that develop electric trucks, Hindenburg later changed its mind about Twitter.

Adani Enterprises’ stock climbed by 125% in 2022, while other group firms, such as the power and gas units, also experienced gains of over 100%.

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