Reports Of Adani’s Eclipse Are Greatly Exaggerated

The American short-selling firm Hindenburg Research’s shocking allegations of stock manipulation and money laundering against the Adani Group of companies rocked India for close to a fortnight. The media hype is, fortunately, waning and serious opposition politicians with mass base are returning to consequential pastures in the upcoming elections.

Hindenburg alleged improper use of offshore tax havens and stock manipulation by the Adani Group. It also raised concerns about high debt and the valuations of seven listed Adani companies. The Adani Group denied the allegations, saying the short-seller’s allegation has “no basis” and stems from an ignorance of Indian law. India’s market regulator is nonetheless examining the rout in the shares of Adani Group.

The Adani Group has taken a massive hit not only in reputation but also losing over $110 billion in market value in India’s bourse, which forced it to scupper a record $2.4 billion share sale. “Once the market stabilises, we will review our capital market strategy,” Gautam Adani, the founder and chairman of the Adani Group, said.

Fitch Ratings, which has ratings on eight entities within the Adani Group, largely concurred, saying it expected no material changes to the conglomerate’s forecast cash flow. Fitch added that there were no significant offshore bonds maturing in the near term, which also reduced refinancing risks and near-term liquidity risks.

The matter has gone to India’s Supreme Court via a public interest litigation seeking probe against Hindenburg “for exploiting innocent investors.” Interestingly, Hindenburg also holds short positions in Adani companies through US-traded bonds and non-Indian-traded derivative instruments.

Hindenburg’s actions have been controversial. The firm’s financial model involves identifying “bad” firms, investing to profit from the company’s price collapsing, and then publishing a negative report about the company.

Adani Group formally takes over Israel’s strategic port in Haifa City

Adani has Australian operations. Thus, it is that an Australian academic held the torch light at the legal and ethical questions that needed to be asked about Hindenburg Research’s report. Prof Mark Humphery-Jenner at the University of New South Wales Business School draws the analogy of “lay betting” — i.e., betting against a team in a match — to estimate that short-sellers like Hindenburg “might expose fraud. But, they do so to make money. This typically involves having a “short exposure” to the company’s stock, which benefits when the stock price falls.”

The professor explained that an “activist investor” might take a short position, publish a malicious report, and then “cash out” after spreading what may eventually turn out to be false information — or, “might obtain material non-public information, trade on that information, and then reveal the information after they have traded.”

He concluded: “Discovering Enron-scale frauds is a public good… (But) Hindenburg – and its employees – need to eat. And thus, there must be some financial payoff to do this work. These reports would not exist without the payoff and the talent would work elsewhere.” Period.

Setting aside the controversy whether Prime Minister Modi had been helpful to Adani Group’s phenomenal rise — Modi doesn’t hide he’s “business-friendly” — historically, this political culture dates back to the early years of independence when successive Congress governments intervened to foster a private sector where none existed when the British colonial rule ended. (I grew up in the 1960s when it was rumoured that a prominent business house in India commanded the loyalty of dozens of MPs.)

This culture became state policy in the 1990s when the Indian government took to the neoliberal ideology and prime ministers began openly promoting business interests of private companies. Today, a Marxist chief minister makes himself available to inaugurate the sales showroom of super luxury Lamborghini sports cars!

There is nothing wrong with that pragmatic mindset.  In fact, government should promote Indian companies internationally.  That was how Sony, Hyundai, Ali Baba steamed ahead. Recently, President Biden called Modi — and President Macron held a virtual meeting with Modi — to celebrate the TATA-group owned Air India’s deal for 470 Boeing and Airbus aircrafts with an aggregate purchase value of $115 billion, the largest-ever aircraft order in global aviation history.   

Beijing insists that Huawei’s rehabilitation in America is a litmus test for the China-US relationship. Brand names like Adani Group are important. It takes much effort to create a brand name globally. And it is so easy to tarnish it.

Adani flagged that the Hindenburg report was a “calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India.” We cannot be dismissive about such a possibility. Indeed, today’s reality is that after China brilliantly seized the high ground, the Western countries have turned their back on globalisation.

And they are returning to mercantilist foreign policies. Neo-mercantilist strategies — regime change, sanctions, brigandage, etc. — have roared back to the centerstage. Now, India refuses to be part of the Euro-Atlantic agenda in shaping the 21st century world order. The Euro-Atlantic world is upset about it. Financiers like George Soros feel like beached whales in the Indian conditions because a huge financial market is inaccessible for rapacious exploitation.

The big question, however, remains: Why Adani, why not someone else with a rhyming name? Three things probably make the difference. At the most obvious level, Adani is from Gujarat, Modi’s home state — although his rise began with the liberalisation of foreign trade under Prime Minister Rajiv Gandhi (whose father was also, curiously, a Gujarati.)

Thus, Adani becomes what T.S. Eliot would call an “objective co-relative” to attack Modi. The West is well aware that it is foolhardy to engineer a regime change in the fragmented Indian polity and society. But what is possible is to pressure the Modi government to be more cooperative to the agenda to preserve a US-led, western-dominated world order. This is one thing.

Second, Adani very likely became a victim of that “green-eyed monster” — to borrow from  Shakespeare — who co-habitates his vicious corporate world.

Third, stemming from the above, Adani’s over vaulting ambition brings to mind Icarus from Greek mythology who flew too close to the sun which caused the wax in his wings to melt and fall apart plunging him into the sea. This needs some explaining.

Who else but Adani, a self-made man, would have the audacity to successfully bid for Haifa, Israel’s largest port city? Simply put, Adani Group has established a strategic foothold for India in the Eastern Mediterranean.

Adani’s concession period in Haifa extends to 2054. His plans are to create a skyline for Haifa city, make it a hub for AI technology, and to expand India’s Mediterranean footprint and foray into the European market.

Haifa regularly hosts joint US-Israeli naval drills and visits from American vessels. With the decline of the US Sixth Fleet, US strategic interests demand forward-deployment of US Navy ships in Haifa port. No Indian corporate house every aspired to create an audacious  global footprint of this kind.

Make no mistake, Adani is already on a comeback trail. In a critical article, Haaretz newspaper reported, “The United Arab Emirates, which has been a major backer of Adani’s for the past several years … announced immediately after Hindenburg Research released its report that it would pick up a $400 million stake in a since-cancelled Adani Enterprises’ share sale — indicating that the Indian businessman enjoys support for his plans beyond Israel.”

The report by Hindenburg appeared on the eve of the formal takeover of Haifa by Adani at a ceremony on January 31. Haifa, Israeli PM Benjamin Netanyahu predicted optimistically during the handover ceremony, “will become the entry point and exit point for a vast number of goods that will reach the Mediterranean and Europe directly, without having to go around the Arabian peninsula.”

Source: The Indian Punchline

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