After 2-year investigation on the Indian conglomerate Adani Group, Hindenburg Reseach found out that the Company has engaged in stock manipulation and accounting fraud scheme over the course of decades.Gautam Adani, Founder and Chairman of the Adani Group, has amassed a net worth of roughly $120 billionIts 7 key listed companies have 85% downside purely on a fundamental basis owing to sky-high valuations.Key listed Adani companies have also taken on substantial debt, including pledging shares of their inflated stock for loans, putting the entire group on precarious financial footing.5 of 7 key listed companies have reported ‘current ratios’ below 1, indicating near-term liquidity pressure.The group’s very top ranks and 8 of 22 key leaders are Adani family members.The Adani Group has previously been the focus of 4 major government fraud investigations.Gautam Adani’s younger brother, Rajesh Adani, was accused by the Directorate of Revenue Intelligence (DRI) of playing a central role in a diamond trading import/export scheme around 2004-2005. The alleged scheme involved the use of offshore shell entities to generate artificial turnover. 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.Gautam Adani’s brother-in-law, Samir Vora, was accused by the DRI of being a ringleader of the same diamond trading scam and of repeatedly making false statements to regulators. He was subsequently promoted to Executive Director of the critical Adani Australia division.Gautam Adani’s elder brother, Vinod Adani, has been described by media as “an elusive figure”. He has regularly been found at the center of the government’s investigations into Adani for his alleged role in managing a network of offshore entities used to facilitate fraud.Vinod Adani, through several close associates, manages a vast labyrinth of offshore shell entities.38 Mauritius shell entities are controlled by Vinod Adani or close associates.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.13 websites were created for Vinod Adani-associated entities; many were suspiciously formed on the same days, featuring only stock photos, naming no actual employees and listing the same set of nonsensical services, such as “consumption abroad” and “commercial presence”.Evidence of stock manipulation in Adani listed companies shouldn’t come as a surprise. SEBI has investigated and prosecuted more than 70 entities and individuals over the years, including Adani promoters, for pumping Adani Enterprises’ stock.In addition to using offshore capital to park stock, we found numerous examples of offshore shells sending money through onshore private Adani companies onto listed public Adani companies.The funds then seem to be used to engineer Adani’s accounting (whether by bolstering its reported profit or cash flows), cushioning its capital balances in order to make listed entities appear more creditworthy, or simply moved back out to other parts of the Adani empire where capital is needed.They identified numerous undisclosed related party transactions by both listed and private companies, seemingly an open and repeated violation of Indian disclosure laws.In one instance, a Vinod Adani-controlled Mauritius entity with no signs of substantive operations lent INR 11.71 billion (U.S. ~$253 million at that time) to a private Adani entity which did not disclose it as being a related party loan. The private entity subsequently lent funds to listed entities, including INR 9.84 billion (U.S. $138 million at more recent substantially lower exchange rates) to Adani Enterprises.This offshore shell network also seems to be used for earnings manipulation.Adani Group’s obvious accounting irregularities and sketchy dealings seem to be enabled by virtually non-existent financial controls.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. Records show it pays INR 32,000 (U.S. $435 in 2021) in monthly office rent. The only other listed entity we found that it audits has a market capitalization of about INR 640 million (U.S. $7.8 million).Shah Dhandharia hardly seems capable of complex audit workThe audit partners at Shah Dhandharia who respectively signed off on Adani Enterprises and Adani Total Gas’ annual audits were as young as 24 and 23 years old when they began approving the audits. They were essentially fresh out of school, hardly in a position to scrutinize and hold to account the financials of some of the largest companies in the country, run by one of its most powerful individuals.It is believed that the Adani Group has been able to operate a large, flagrant fraud in broad daylight in large part because investors, journalists, citizens and even politicians have been afraid to speak out for fear of reprisal.There are 88 questions in the conclusion of the report. If Gautam Adani truly embraces transparency, as he claims, they should be easy questions to answer.Hindenburg Research has opened a short position on Adani Group’s companies
