Is this India's Enron? Gautam Adani falls to third place, and group stocks lose Rs 12 lakh crore in a month.

Is this India's Enron? Gautam Adani falls to third place, and group stocks lose Rs 12 lakh crore in a month.

The market capitalization of TCS, India's second most valuable firm, and the losses suffered by the group's ten listed companies after the publication of the Hindenburg report are almost identical at Rs. 12.06 lakh crore.

A month ago, Gautam Adani was the third richest man in the world and the richest man in Asia. However, a damning report from a US firm caused a massive sell-off in shares of his apples-to-airport group, which caused a decline in his personal wealth of USD 80 billion and sent the tycoon down to No. 30 on the global billionaire index.

The vast conglomerate of Adani, which includes seaports, airports, edible oil and commodities, energy, cement, and data centres, is under attack by US short-seller Hindenburg Research, which deflated Nikola Motors, a manufacturer of electric vehicles, in 2020.

On January 24, Hindenburg accused the conglomerate of engaging in "brazen stock manipulation and accounting fraud" and using a number of offshore shell companies to artificially inflate stock prices. Hindenburg held short positions in unidentified shares of Adani Group companies through its US-traded debt and offshore derivatives.

Allegations have been refuted by the organisation, which has called them "malicious," "baseless," and a "planned attack on India."

SELL-OFF: Since the release of the Hindenburg report, the group's ten publicly traded companies have lost a combined total of Rs. 12.06 lakh crore, which is almost equal to Tata Consultancy Services' (TCS) market capitalization, the second-most valuable corporation in India.

Adani Total Gas Ltd., a joint venture between the group and TotalEnergies of France for the retailing of CNG, has lost 80.68% of its market value, while Adani Green Energy, where the French company has also invested, has experienced a loss of 74.62%.

Since January 24, the market value of Adani Transmission has decreased by 74.21%, while the value of its parent company, Adani Enterprises, has dropped by over 62%. The market capitalization of Adani Power, Adani Wilmar, its cement businesses, media company NDTV, and Adani Ports & SEZ has also declined.

First-generation businessman and group founder Gautam Adani, 60, has lost USD 80.6 billion in fortune, mostly as a result of the valuation of his stake in group enterprises.

His net worth has decreased from USD 120 billion before the Hindenburg report to USD 40 billion, placing him at No. 30 on the list of the world's billionaires.

Competitor Mukesh Ambani, whom he had surpassed last year to become the richest businessman in Asia and the third-richest in the world, is currently placed No. 10 with USD 81.7 billion in wealth.

The Enron Moment Lawrence Summers, a former US treasury secretary and president of Harvard University, recently compared the Adani Group problem to the 2001 accounting scandal that exposed American energy giant Enron.

During Bloomberg's Wall Street Week, he had observed, "We haven't talked about it on the show, but there's been a kind of potential Enron moment in India. And I expect there will be a lot of interest from everyone present about how that's going to play out and what, if any, bigger systemic implications that's going to have for India given that India is rapidly becoming the largest country in the world and the (G20) meeting is taking place there.

It was compared to the 2001 stock market crash caused by the disclosure that Enron Corporation had overstated revenues and concealed trading losses.

Allegations: According to Hindenburg, Adani Group inflates stock prices and violates shareholding regulations, which call for the public to own at least 25% of listed businesses, by using a variety of shell companies. Additionally, it warned of debt-fueled growth and the group's "seriously overleveraged" state.

Adani responded with a 413-page document on January 27, referring to Hindenburg as "the Madoffs of Manhattan" in a dig at Ponzi schemer Bernie Madoff.

Whether Adani executives or family members have influence on organisations that held Adani firm shares is at the basis of Hindenburg's allegations.

A financial services firm with connections to the Adani family, Trustlink International Ltd, purportedly formed Opal Investment Pvt Ltd, a Mauritius-incorporated entity that owns a 4.69 percent share in Adani Power.

On the board of Opal is a director of Trustlink. Adani Group responded on January 27 by saying that it has no influence on the equities Opal and other independent shareholders purchase or the source of their funding.

The Adani Group has been painted by the opposition Congress party as an oligarch supported by the Modi administration using the Hindenburg report. Both the government and the BJP, which is in power, have refuted the accusations.

BROTHERLY RELATIONSHIP: The management of the offshore firms by Vinod Adani, Gautam Adani's older brother, has come under spotlight as a result of the Hindenburg report. Vinod, who is said to work out of Dubai and is identified as a Cypriot national, is not a manager in any publicly traded Adani Group companies, but he is in charge of a vast network of organisations in Mauritius, Cyprus, and several Caribbean Islands that "regularly and covertly transact with Adani," according to Hindenburg.

Vinod Adani holds no managerial positions and plays no part in the day-to-day operations of any listed companies or their subsidiaries, according to the Adani Group in response.

Nonetheless, Vinod Adani is rumoured to have been an important negotiator for the Adani Group when it was obtaining money from foreign markets. With the USD 10.5 billion acquisition of cement producers Ambuja Cements Ltd and ACC Ltd by Adani Group, he and his wife Ranjanben were the beneficial owners of the businesses that purchased shares on the open market.

FPO: The release of the Hindenburg report coincided with the second-largest follow-on share sale in India, a Rs 20,000 crore offering by Adani Enterprises. The shares were initially offered at a discount to the market price, but after the release of the report, there was a sharp sell-off and the shares dropped below the offering price.

The FPO was able to close with full subscription thanks to international investors like International Holding Co. PJSC of Abu Dhabi and local heavyweight Life Insurance Corporation (LIC), but the business cancelled the share sale and gave the money back. This may have been done in order to spare investors like LIC from suffering significant losses.

COMEBACK STRATEGY: With the aid of top-tier American crisis communication and legal firms, Adani Group is preparing a comeback plan that would address investor concerns about debt, consolidate operations, and debunk claims.

To cut costs and pay off some debt, it has abandoned plans to bid for a stake in electricity trader PTC and a Rs 7,000 crore coal plant purchase.

To counter Hindenburg's accusations, it has hired American law firm Wachtell, Lipton, Rosen and Katz and hired Kekst CNC as a global communications advisor.

In order to unlock pledged shares in Adani Green Energy Ltd, Adani Transmission Ltd, and Adani Ports & Special Economic Zone Ltd, the group has paid USD 1.11 billion. It will prepay a bridging loan of $500 million that was obtained to pay for the acquisition of Holcim Ltd.'s cement assets.

Adani Ports has already paid back Rs 1,500 crore to Aditya Birla Sun Life Mutual Fund and SBIO MF, and it will also settle another Rs 1,000 crore in commercial papers that are due in March.

According to a stock exchange filing, the group had a gross debt of Rs 2.26 lakh crore as of September 30. There were Rs 31,646 crore in cash and cash equivalents overall. Between January 2023 and March 2024, a repayment obligation of Rs 17,166 crore is due.