On Friday, Adani Transmission, Adani Green Energy, and Adani Total Gas closed at 20% lower circuits each. While Adani Power and Adani Wilmar hit 5% lower circuits each. Adani Ports wasn't performing any better and tumbled by over 16% at the end of the day.
Meanwhile, Adani's flagship company, Adani Enterprises, which launched its FPO on Friday, nosedived by around 20% before closing at ₹2,762.15 apiece on BSE.
The first day of the FPO saw muted demand across investors.
Under the ₹20,000 crore worth FPO, on Friday, only 4,70,160 equity shares were bid against the offered size of 4,55,06,791 equity shares. The price band for the FPO is set from ₹3,112 to ₹3,276 per FPO equity share for all categories of investors.
If Adani's FPO is fully subscribed, then this will become the second largest follow-on public offer in India after Coal India's ₹22,558 crore issue in 2015. Earlier in 2020, Yes Bank had launched a ₹15,000 crore FPO.
But circumstances changed drastically a few days before Adani's FPO and it would be Hindenburg Research's report under which it accused Adani of stock manipulation and fraud schemes.
In its report on January 24, the New York-based investment research firm said, "we reveal the findings of our 2-year investigation, presenting evidence that the ₹17.8 trillion ($218 billion) Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades."
Hindenburg's report indicated that Gautam Adani, Founder, and Chairman of the Adani Group, has amassed a net worth of roughly $120 billion, adding over $100 billion in the past 3 years largely through stock price appreciation in the group’s 7 key listed companies, which have spiked an average of 819% in that period.
The findings of Hindenburg's research report on Adani involved interactions with dozens of individuals, including former senior executives of Adani and also reviewing thousands of documents, and conducting diligence site visits in almost half a dozen countries.
Also, the research said, even "if you ignore the findings of our investigation and take the financials of Adani Group at face value, its 7 key listed companies have 85% downside purely on a fundamental basis owing to sky-high valuations."
Adani companies' debt was also among the key factors that Hindenburg pointed out.
It said, 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.
Hindenburg's research note came as a shock and Adani stocks went into frenzied selling.
Although, Adani has denied Hindenburg's accusations.
On January 27th, Adani Enterprises filed a presentation covering Adani Group’s response to Hindenburg Report. It was titled "Myths of Short Seller".
Hindenburg is the short seller.
According to Adani's presentation, Hindenburg asked 89 questions in total. While some of these questions are in regards to the group's related party transactions, DRI (Directorate of Revenue Intelligence), and court cases. However, there are 21 questions in total that cannot be claimed to be the result of any investigation over a 2-year period or any such assertion as they were disclosed in public documents all the way back from 2015 onwards.
Further, Adani said, 8 of 9 listed companies have a big 6 auditor such as Deloitte Haskins & Sells, SRBC & Co. (EY), SRBC & Co. (EY) & Dharmesh Parikh & Co. (Joint Auditors), Shah Dhandharia & Co., Ernst & Young, PKF, Walker Chandiok & Co. and K S Rao & Co., etc.
Moreover, on the leverage issue, Adani mentioned 100 of its various companies are rated ( these account for nearly 100% of its EBITDA). Also, in regards to revenue or balance sheet being artificially inflated or managed, it said, out of 9 listed companies in Adani portfolio — 6 are subject to specific sector regulatory review for revenue, costs, and capex.
Meanwhile, in terms of governance, 4 of Adani's large companies are in the top 7% of the peer group in Emerging markets or the sector or the world. On LAS position, Adani said, overall promoter leverage is less than 4% of promoter holding.
Earlier, on January 25, Jugeshinder Singh, Group CFO, Adani said, "We are shocked that Hindenburg Research has published a report on 24 January 2023 without making any attempt to contact us or verify the factual matrix. The report is a malicious combination of selective misinformation and stale, baseless, and discredited allegations that have been tested and rejected by India’s highest courts."
"The timing of the report’s publication clearly betrays a brazen, mala fide intention to undermine the Adani Group’s reputation with the principal objective of damaging the upcoming Follow-on Public Offering from Adani Enterprises, the biggest FPO ever in India," Singh added.
Also, on January 26, Jatin Jalundhwala, Group Head - Legal, Adani said, "the maliciously mischievous, unresearched report published by Hindenburg Research on 24 Jan 2023 has adversely affected the Adani Group, our shareholders, and investors. The volatility in Indian stock markets created by the report is of great concern and has led to unwanted anguish for Indian citizens."
Nevertheless, the panic selloffs in these seven stocks have led to a massive correction in Gautam Adani's net worth. Asia's richest man's wealth is to the tune of $92.7 billion as of January 28. As per Bloomberg Billionaire Index, Adani's net worth has dropped by $20.8 billion at the latest. However, year-to-date, Adani's wealth has dipped by $27.9 billion.
