India’s market regulator has increased scrutiny of deals by the Adani Group over the past year and says it will review a report by Hindenburg Research, which accused the conglomerate of improper use of offshore tax havens.
The Securities and Exchange Board of India (SEBI) will study the Hindenburg report to add to its ongoing inquiries into the group’s foreign portfolio investors, two sources said.
“SEBI has been increasingly examining all the transactions that Adani Group has been undertaking in the listed space,” said the first of the two sources, who declined to be identified as the matter is confidential. SEBI had been increasingly asking for disclosures that it ordinarily does not seek.
Seven listed companies of the Adani conglomerate have lost a combined $65 billion in market capitalisation since Wednesday in light of the short-seller’s report. Hindenburg said it held short positions in Adani through its US-traded bonds and non-Indian-traded derivative instruments.
SEBI spokespeople did not offer any immediate comments, saying they do not discuss company specific matters and ongoing probes.
In the case of Adani Group’s acquisition of Switzerland-based Holcim’s key stake in India’s Ambuja Cements and ACC, the regulator examined the offshore special purpose vehicle (SPV) used for the transaction, the first source said.
The use of this SPV was disclosed by the group as part of the acquisition announcement in May 2022. The regulator had found as many as 17 foreign offshore entities involved in the funding of the cement groups.
The regulator had sought clarity from the group on these entities when Adani Group approached it for regulatory clearance last year. These responses were being examined by the regulator, sources said.
And in July, the regulator initiated a probe of little-known offshore funds based out of Mauritius which had large holdings in Adani’s Group’s listed companies. It raised potential concerns about stock price manipulation.
At the time, the regulator’s investigation hit a wall due to lack of information from jurisdictions where these funds were domiciled.
Some issues raised in the Hindenburg report point to concerns similar to what the regulator had regarding movement of funds between parties related to the Adani Group through offshore funds back into local companies, sources said.
Hindenburg’s scathing research report questioned how Adani Group has been able to use offshore entities in foreign tax havens like Mauritius and the Caribbean Islands. Certain offshore funds and shell companies tied to the Adani Group “surreptitiously” own stock in Adani listed firms, it added.
It also said key listed Adani companies had “substantial debt”, putting the entire group on a “precarious financial footing.” It asserted that shares in seven Adani listed companies have an 85% downside on a fundamental basis due to “sky-high valuations”.
Hindenburg said its research report was based on an investigation undertaken over two years. It involved speaking with dozens of individuals, including former Adani Group executives, as well as a review of documents, it said.
Note: This report was updated on January 31, 2023 to amend the drop in market value of Adani companies.
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