Adani vs Hindenburg: The story of Asia's richest man and why is his company tanking

Shares in the business empire of Gautam Adani nosedived days after activist US investment group Hindenburg Research claimed it had committed "brazen" corporate fraud.
Adani Group Chairman, Gautam Adani smiles after addressing the media in Ahmedabad on July 21, 2009. (File Photo | AFP)
Adani Group Chairman, Gautam Adani smiles after addressing the media in Ahmedabad on July 21, 2009. (File Photo | AFP)

MUMBAI: Indian industrialist Gautam Adani is Asia's richest man, with a business empire spanning coal, airports, cement and media.

The business empire of Gautam Adani has shed tens of billions of dollars in value on the back of a report alleging accounting fraud that the Indian tycoon's firm has strenuously rejected.

Who is Gautam Adani?

Adani, 60, is a publicity-shy school dropout of humble origins who rose to become the world's third-richest man with a fortune -- until last week -- of around $130 billion. He was born in Ahmedabad to a middle-class family but dropped out of school at 16 and moved to the financial capital Mumbai to find work in the lucrative gems trade.

After a short stint in his brother's plastics business, Adani launched the flagship family conglomerate that bears his name in 1988 by branching out into export trade. His big break came seven years later with a contract to build and operate a commercial shipping port in his home state of Gujarat just as India's economy was opening up.

On New Year's Day in 1998, Adani and an associate were reportedly kidnapped by gunmen demanding $1.5 million in ransom, before being later released at an unknown location. A decade later, he was dining at Mumbai's Taj Mahal Palace hotel when it was besieged by militants, who killed 160 people in one of India's worst terror attacks.

Trapped with hundreds of others, Adani reportedly hid in the basement all night before he was rescued by security personnel early the next morning. "I saw death at a distance of just 15 feet," he said of the experience after his private aircraft landed in his hometown Ahmedabad later that day.

A self-described introvert, he keeps a low profile and rarely speaks to the media, often sending lieutenants to front corporate events. "I'm not a social person that wants to go to parties," he told the Financial Times in a 2013 interview.

What does his empire do?

Today Adani Group does everything from power generation and coal mining to cement, media and food. Its seven listed units had a market value in January of around $220 billion.

Critics say Adani's closeness to Prime Minister Narendra Modi, a fellow native of Gujarat state, has brought his group an unfair advantage in winning business.

On the back of eye-watering rises in the share prices of his firms, Adani became Asia's richest man. Globally only Elon Musk and Bernard Arnault and family were wealthier, according to Forbes.

Adani's shipping port business grew to become India's largest at a time when most ports were government-owned -- the legacy of a sclerotic economic planning system that impeded growth for decades and was in the process of being dismantled.

Adani in 2009 expanded into coal, a lucrative sector for a country still almost totally dependent on fossil fuels to meet its energy needs. However, the decision brought international attention as he rose rapidly up India's rich list.

His purchase the following year of an untapped coal basin sparked years of "Stop Adani" protests in Australia after dismay at the project's monumental environmental impact. Similar controversies plagued his coal projects in central India, where forests home to tribal communities were cut down for mining operations.

Adani's $900 million coastal port project in Kerala was the site of violent clashes between police and a local fishing community demanding a halt to construction.

Last year he launched and completed a hostile takeover of broadcaster NDTV, a television news service considered one of the few media outlets willing to outwardly criticise India's leader. Adani batted away press freedom fears, but told the Financial Times that journalists should have the "courage" to say "when the government is doing the right thing every day."

The billionaire has also channelled Modi's strident rhetoric when talking about the historical injustices suffered by India during the era of British rule. "A country, crushed and drained by its colonial rulers, today stands on the cusp of extraordinary growth," he told a business forum in November.

What has been alleged?

Adani Group's rapid expansion into capital-intensive businesses has raised alarms, with Fitch subsidiary and market researcher CreditSights warning last year that it was "deeply overleveraged."

On January 24, Hindenburg Research -- an activist US investment group that bets on stocks falling -- accused Adani Group of committing "a brazen stock manipulation and accounting fraud scheme over the course of decades."

Hindenburg's two-year investigation also found that elder brother Vinod Adani, "through several close associates, manages a vast labyrinth of offshore shell entities."

"We believe the Adani Group has been able to operate a large, flagrant fraud in broad daylight in large part because investors, journalists, citizens and even politicians have been afraid to speak out for fear of reprisal," it said.

Hindenburg said a pattern of "government leniency towards the group" stretching back decades had left investors, journalists, citizens and politicians unwilling to challenge its conduct "for fear of reprisal."

The issues now facing Adani's empire "strike at the heart" of India's corporate sector and the dominance of family-controlled firms, Global CIO Office chief executive Gary Dugan told Bloomberg on Friday.

"By their very nature they are opaque, and global investors have to take on trust the issues of corporate governance," he said.

What has been the result?

The report has sparked a huge sell-off in shares in Adani's firms, wiping out more than $68 billion in market value, according to Bloomberg News. Trading in some stocks was temporarily halted.

Adani's personal wealth has dived by around $40 billion and he has tumbled down the real-time Forbes rich list to number eight.

The timing was also terrible, coming just as Adani Group is seeking to raise $2.5 billion to strengthen its finances with a sale of shares that is due to expire on Tuesday.

How has Adani reacted?

On January 25, Adani's finance chief called the Hindenburg report a "malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India's highest courts".

On Sunday the firm issued a 413-page statement that it said rebutted all of Hindenburg's claims, calling the group the "Madoffs of Manhattan" -- a reference to crooked financier Bernie Madoff.

"This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India," it said.

Did this reassure investors?

Some of Adani's firms inched back upwards on Monday, but on the whole, investors continued to dump Adani stock, wiping off billions more in market value.

Hindenburg said that only about 30 pages of the Adani statement focused on issues related to its report.

"The remainder of the response consisted of 330 pages of court records, along with 53 pages of high-level financials, general information, and details on irrelevant corporate initiatives, such as how it encourages female entrepreneurship and the production of safe vegetables," it said.

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