A research report published in the US this week cites numerous concerns with Adani’s business structure, accounting practices and its lofty valuation. Echoing Enron – one of the most spectacular corporate failures in recent history – the report even questions how Adani makes money, if at all. What’s the scam?
The scam is short-selling. The Enron collapse in 2001 was caused by a combination of financial reporting fraud and accounting irregularities. The company’s share price, which had been valued at over $90 per share, dropped to pennies and thousands of employees lost their jobs and savings, as the company’s shares was mostly held by the employees. In Adani’s case, the majority of the shares in the seven listed companies that constitute the Adani group are held by Indian billionaire Gautam Adani and his family.
In Australia, Adani is best known for being the owner and operator of Abbot Point coal terminal and the controversial Carmichael coal mine which started operation in 2021 despite intense opposition from environmental groups and the local indigenous community.
According to the eponymously named Hindenburg Research – a short-seller with an impressive track record in calling out (and profiting from) businesses with questionable practices – Adani employs all the tricks in the book of corporate malfeasance. This includes the use of offshore entities to move money between the various entities in the group to bolster the balance sheet or inflate profits.
Through our multi-year research into the Adani Group and its corporate structure, we’ve uncovered a pattern whereby capital is moved from offshore entities to private Indian companies within the Adani empire, often through undisclosed related party transactions in apparent violation of the law, then transferred from there to listed companies.
At that point, the capital can be used to engineer Adani’s accounting, whether by bolstering its reported profit or cash flows, or cushioning its capital balances in order to make listed entities appear more solvent or creditworthy. If needed elsewhere, it can be siphoned back out again through a similar maze of related party deals.
Extract from Hindenburg Research’s report into Adani
The Australian interests of Adani are highlighted as an example of how Adani uses its complicated corporate structures to hide the realities of its business performance from the market. The seven listed entities of the group have 578 subsidiaries between them, many of them in known tax havens.
In 2013-2015, Carmichael Rail and Port Singapore Holdings Pte. Ltd, a Singaporean entity controlled solely by Vinod Adani, engaged in a series of 3 transactions that may have resulted in Adani Enterprises avoiding recognition of large asset impairment charges. The impairments likely would have negatively impacted listed Adani Enterprises’ net income.
The 3 transactions involve a related coal mine, railway, and port in Australia. None of the transactions were specifically disclosed in the Adani Enterprises annual reports. We uncovered them only by reviewing financials for the private Singaporean Carmichael Rail entity.
According to the research report, the scam is that these practices contribute to a combined over-valuation of the Adani listed companies of 85%.
Updated January 30 to include Adani’s response to the Hindenburg report.
Adani: why would a billionaire persist with a financial lemon?
Kim Wingerei is a businessman turned writer and commentator. He is passionate about free speech, human rights, democracy and the politics of change. Originally from Norway, Kim has lived in Australia for 30 years. Author of ‘Why Democracy is Broken – A Blueprint for Change’.