RAJ KUMAR
Ranchi, Feb.7: The Jharkhand unit of the Congress party protested outside the Kutchery Branch of State Bank of India in Jharkhand’s capital today, demanding an investigation into the ‘irregularities’ committed by the Adani group of companies by either a joint parliamentary committee or the Supreme Court chief justice.
The demonstration was headed by the party’s state president, Rajesh Thakur, who stated that the party cannot remain silent in a scenario where public funds are at risk. The party used Hindenburg, a US-based research firm, as the foundation for the display.
The party branch in Jharkhand also challenged Prime Minister Narendra Modi, citing the report that Adani had received full support from the Modi-led union government. The research, according to state president Thakur, has revealed why the condition of two main institutions in the country, SBI and LIC, is deteriorating.
“In the country today, common people’s lifetime wages are declining. How can the Congress party, which always speaks out on issues of public interest, be silent in such a situation” Thakur asked.
Key points in the Hindenburg Research report on Adani
The following are some of the claims made by Hindenburg Research on Adani Group –
- Overvalued shares – The report cites data from FactSet and Hindenburg’s own analysis to claim that the Adani shares are highly overvalued by conventional metrics such as P/E Ratio, Price/Sales ratio and EV/EBITDA. Some of the extreme cases include the P/E Ratio of Adani Enterprises being 42 times the industry average and the Price/Sales ratio of Adani Total Gas being 139.3 times the industry average of 1.0x etc.
- Debt-fuelled business – 5 out of the 7 key listed companies mentioned have reported a current ratio of less than 1. This means that the total amount of current assets is less than the total amount of current liabilities in those companies. This is not a healthy financial practice as this means that the companies are unlikely to have adequate assets to pay off their liabilities in the short run.
- Promoters pledging their stocks – This means that the promoters of the company have taken on additional debt on the basis of the shares that they own. As seen above, the share prices are claimed to be already high and so is the debt – therefore, promoters pledging stocks to take on more debt is not a healthy financial practice in such a context.
- Doubts regarding the management team – The report claims that some members of the management have a questionable past which includes allegations of fraud, duty evasions, scams etc.
- Excess promoter control of shares – It has been alleged that in addition to the already high proportion of promoter holding in shares (close to 74% in multiple cases), significant portions of the remaining public shares are also controlled by shell companies that have ties with the Adani group. Many of these companies have a large majority of their shares invested solely in firms under the Adani Group. This may mean that in practical terms, those companies may have worked their way around the SEBI mandate that requires at least 25% of the shares of a listed company to be in public shareholding. This exposes these companies to a high risk of being delisted.
- Pumped up demand – The preceding point also hints at deliberate pumping of the Adani stock prices through excessive buying pressure from companies that seem to be biased towards (or perhaps connected with) the Adani Group itself. It is claimed that the delivery volume of Adani stocks may have been high because of possible wash trading (ie. buying/selling of a share by the same or related entities to pump up the trading volume numbers). Rumours regarding the involvement of the noted stock manipulator Ketan Parekh have also been raised in the Hindenburg report.
- Inadequate compliance – The report claims that one of the firms hired to bookrun the Adani Green Energy has had past problems with the SEBI. Moreover, one of the independent auditors hired to audit Adani Enterprise and Adani Total gas seems to be too small a company and comprising professionals too young to be able to handle the auditing of such a large array of companies.
Adani Group’s response
Through a twitter post on 25th January, 2023, the Adani Group said that 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”. They questioned the timing of the post (in the context of the Adani Enterprises FPO which came on 27th January 2023 and is the biggest FPO in India ever).
Thereafter, it responded with a point-by-point rebuttal of the allegations made by Hindenburg Research.
- It denied any fraud or artificial pumping of prices.
- Regarding the issue of over-leverage, it claimed that its companies are highly rated and are subject to scrutiny and monitoring by the government anyway, so there is not much scope for irregularities here – overall, promoter leverage is less than 4% of promoter holdings.
- Of its 9 publicly listed entities, 8 are audited by the Big 6, except Adani Total Gas, which is also set to follow the same route in auditing.
There were several other points raised by the rebuttal report from the Adani Group. However, they also mentioned that they will be looking at legal avenues in order to take remedial and punitive measures against those who casted these allegations on the Adani Group.
Hindenburg Research in turn mentioned that if legal actions do take place, they too will demand the release of several important documents to the public and judicial eye during the trial. In other words, when it comes to its Adani Report Hindenburg has chosen to stand by it so far.
