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On Jan. 24, Hindenburg Research, a small investment firm in New York, accused Gautam Adani, an Indian business conglomerate, of “brazen accounting fraud, stock manipulation and money laundering.”
In a detailed report, the US firm claimed the conglomerate's founder, was pulling off the “largest con in corporate history."
Calling it “not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India”, the Indian consortium rejected the allegations and threatened legal action. But Hindenburg does not seem perturbed and has stood to profit as Adani shares fall.
The Adani Group has rejected the allegations and threatened legal action, but now, Adani has now lost more than $100 billion along with his business credibility.
In the last few years, the Adani empire became the main vehicle for India's rise and economic ambitions as well. Closely linked with India’s ruling Bharatiya Janata Party (BJP), the Adani group of companies invested heavily in ports, roads, coal mines, railways and airports within India and abroad.
Therefore, in the larger picture, Gautam Adani’s downfall could also become a foreign policy setback for New Delhi. Due to Adani’s friendship with Indian Prime Minister Narendra Modi, the conglomerate had been making investments that furthered New Delhi’s geopolitical ambitions.
Privileged to meet with @IsraeliPM @netanyahu on this momentous day as the Port of Haifa is handed over to the Adani Group. The Abraham Accord will be a game changer for the Mediterranean sea logistics. Adani Gadot set to transform Haifa Port into a landmark for all to admire. pic.twitter.com/Cml2t8j1Iv
— Gautam Adani (@gautam_adani) January 31, 2023
Having no holdings in the West as of yet, the main focus of the Adani group had been on the Middle East.
Its most important deal was an Israeli government tender to buy Haifa port. Planning to make it a major trade hub to benefit both countries, Adani bid 55% more than the second bidder.
Next, the consortium invested in Elbit Systems, Israel Weapon Systems and Israel Innovation Authority. Quite recently, Adani also met Egyptian President Abdel-Fattah El-Sisi in New Delhi to discuss investing in the Arab country’s airports, ports, renewable energy, green hydrogen and cable networks.
Ashok Swain, professor of peace and conflict research at Uppsala University in Sweden, told Al-Monitor that the unraveling of Adani will hurt Modi.
“Modi and Adani share probably the closest relationship a politician can have with a businessperson anywhere in the world. Their rise has been together; if one falls, the other is likely to fail.”
The success of Modi's foreign policy in the Middle East has been in economic benefits, he said, and "if Adani's empire collapses, that will certainly affect Modi's as well as India's standing in the Middle East.”
According to Swain, in September 2013, Adani’s worth was $1.9 billion and by August 2022, it became $137 billion. Adani’s political affiliations reportedly helped him win infrastructure contracts in multiple sectors at home. If the group sinks, it can virtually hurt much of India’s industrial policy.
But right now, this episode has raised questions about India’s credibility as a destination for investors.
.subtext-iframe{max-width:540px;}iframe#subtext_embed{width:1px;min-width:100%;min-height:256px;}Credibility hit might be irreversible
Mohamad Forough, a researcher at the German Institute for Global and Area Studies in Hamburg, told Al Monitor, that the unraveling was not a surprise.
“The rumors of the Adani Group being overvalued have been circulating for a while, and the scandal was only a matter of time. Now that it has come to light, there are several possible outcomes," Forough said.
He saw two scenarios, one where the the Group may survive but would be permanently devalued.
“It has already lost around $100B, and as a result its influence around the world, including the Middle East, will decrease relative to losses," Forough said.
The other scenario is a complete bankruptcy of the Group. "It would be followed by nationalization of its assets by the Indian government. This scenario would have the most negative consequences for all parties and investments worldwide, including in the Middle East," he said.
The positive outcome could be “a rebound with minimal losses, which would result in minimal negative impact on its operations and investments in the Middle East and elsewhere.”
Regardless of which scenario unfolds, the damage to the credibility of the group is irreversible, Forough argued.
"The reputational damage is permanent and the Group (if it survives this scandal) will likely be viewed with suspicion around the world and in the region and this will negatively impact its investments everywhere," the expert said.
Even as the financial standing of his company remained uncertain on the Bombay Stock Exchange, Adani was trying to save the situation by finalizing the strategic buy of Haifa port for $1.2 billion. He even appeared alongside the Israeli Prime Minister Benjamin Netanyahu for signing the deal.
Some reports say the Adani Group may have been buying its own shares through subsidiary companies. According to the Hindenburg report, seven Adani-listed companies were overvalued by more than 85%.
Meanwhile, the investment branch of Citigroup stopped accepting Adani Group securities as collateral and Credit Suisse assigned zero lending value to bonds issued by Adani companies.
Already, the Bangladesh government seeks a revision of the power purchase agreement it signed with Adani Power Ltd for importing electricity from its thermal power plant in Jharkhand, India.
Could New Delhi’s ties to the conglomerate have a long-term impact? Zeeshan Shah, a financial analyst at FINRA in Washington, told Al-Monitor, it could happen in the medium term.
“The answer is yes. Adani was being promoted by the Indian government, and Modi as essentially their response to Chinese infrastructure investments in the surrounding region,” Shah said.
Meanwhile Egyptian President has shown readiness to support #Adani group and extend possible support through cooperation with the sovereign fund of egypt to invest in IIZ in strategic Suez Canal. pic.twitter.com/McxU5KfYyZ
— Megh Updates 🚨™ (@MeghUpdates) February 3, 2023
Adani's fortune was essentially fueled by loans instead of actual income streams, Shah said, and "this would reinforce the reputation India has had of over-promising and under-delivering with regards to infrastructure projects abroad.”
Nevertheless, he said that other Indian business groups might be able to fill the gap.
Some connections have been trying to help Adani through the crisis. Even after the major losses, Abu Dhabi’s International Holding Co. added $400 million in the Adani Enterprises’ follow-on share sale. Other investors included the London-listed Jupiter Asset Management, Goldman Sachs and two Indian tycoons, Sajjan Jindal and Sunil Mittal.
However, in India, there are speculations that the tycoon might raise cash by selling off one of his ports or power plants, the Financial Times reported.
