Adani Group on verge of pre-Hindenburg market value, only $30 billion short

While allegations of malpractices allegedly followed by the Adani Group as made in the Hindenburg report remain under probe by SEBI, the conglomerate’s shares have rallied over time with continued support from the Modi government.

A Bloomberg report on 24 May 2024 showed that Adani Enterprises, the group’s flagship company, had fully recovered from the losses incurred by the short-sellers report in early 2023, thanks to debt reduction and the securing of major projects.

The stock regained over $30 billion in losses following allegations of widespread corporate misconduct and share-price manipulation by US-based Hindenburg Research, which the ports-to-power conglomerate has consistently denied these claims.

The flagship stock on 24 May surged 1.7 per cent to Rs 3,445.05 on Friday, nearly tripling since its low point in February 2023. This latest rise comes amid expectations that Adani Enterprises’ stock will be added to the S&P BSE Sensex Index in June, potentially attracting passive investment flows.

SEBI’s ongoing investigation explores the complexities of foreign portfolio investors’ ownership, scrutinising corporate governance issues such as related party transactions, and examining the auditors' roles.

The Hindenburg report claimed that certain Foreign Portfolio Investments (FPIs) in Adani Group stocks were owned by shell companies located outside India and closely linked to the group. The report said these investments allegedly helped artificially inflate Adani Group’s stock values.

Under Rule 19(A) of the Securities Contracts (Regulation) Rules 1957, listed companies are required to maintain a minimum of 25 per cent public shareholding to ensure transparency and prevent market manipulation.

This 25 per cent public shareholding, also known as free float, allows a company to raise capital from the market and aids in accurate price discovery.

Hindenburg Research has alleged that offshore shells and funds tied to the Adani Group comprise many of the largest 'public' (i.e., non-promoter) holders of Adani stock. This suggests that several offshore funds, whose ultimate beneficiaries are unknown due to their offshore status, were allegedly linked to the company. This is significant because these offshore funds, or FPIs, held most of the free float in the Adani-listed firms.

Other Adani companies have been engaging with global investors to raise new debt as the group advances its plans to expand its cement and copper businesses. Besides Adani Enterprises, at least five of the ten listed Adani group stocks are now trading above their levels prior to the Hindenburg report.

Abhay Agarwal, a fund manager with Mumbai-based Piper Serica Advisors Pvt was quoted by a report in Moneycontrol as observing that “There are only a few groups in India capable of undertaking large projects, and Adani Group has taken the lead.” He added, “Investors view the Adani group as aligned with national policy, and with clear policy direction, we are seeing a recovery.”

The Hindenburg report had led to Adani Enterprises cancelling a $2.4 billion equity offering, which was set to be India’s largest follow-on share sale. This triggered a stock meltdown that wiped out more than $150 billion from the group’s market value and significantly impacted Gautam Adani's personal wealth, while prompting regulatory investigations in India.

As per the Bloomberg report, the group is now less than $30 billion away from regaining its market value as of the eve of the short seller's report. The initial phase of the recovery for Adani stocks began in March 2023, when prominent emerging-market investor Rajiv Jain's GQG Partners purchased nearly $2 billion worth of shares in four of the group's firms, including the flagship, from an Adani family trust.

Jain continued to increase his holdings throughout 2023. The group also secured investments from the Qatar Investment Authority and UAE-based International Holding Co.

Meanwhile, the Adani Group is embroiled in another controversy, with the Organised Crime and Corruption Reporting Project (OCCRP) alleging that the conglomerate sold low-quality coal as high-value cleaner fuel to Tamil Nadu's government-owned power utility.

According to a Financial Times report on Wednesday, 22 May, documents accessed by the OCCRP reveal that in January 2014, Adani purchased an Indonesian shipment of coal with a calorific value of 3,500 calories per kg.

This same shipment was subsequently sold to the Tamil Nadu Generation and Distribution Company (Tangedco) as 6,000-calorie coal, one of the most valuable grades. The report claims that in January 2014, Adani Group acquired 'low-grade' coal from an Indonesian company at a cost of $28 per tonne. This shipment was then sold to Tangedco as high-quality coal for an average price of $91.91 per metric tonne.