Gautam Adani: the billionaire vs the short seller | FT FIlm

[Music] the story of adani is the story of the world's third richest man being cut down to size by a short seller group on the other side of the world an industrialist who has been favored by Mr Modi the Danish scandal a wake-up call to the Indian government that we need a complete overhaul of our regulatory system crony capitalism has developed because these businessmen play such a key role in building out infrastructure the Hindenburg reports through a spanner in the works [Music] on January 24th a report from U.S based short seller Hindenburg research accused adani of share price manipulation and fraud and that ultimately knocked about 100 billion dollars off of their Market valuation gauto madani went from being the world's third richest man on the Forbes rich list to somewhere in the 20s it was extraordinary the adani story is a question of who you know versus What markets know it's a question of whether a Donny's connections are strong enough to carry this massive infrastructure Empire through the market tomorrow sparked by a single short report he has paid back his debt on his personal shareholding which he had borrowed about two and a half billion dollars nobody in this country has the concern about the ability to repay debt so underlying the entire story of adani we should never forget is a very competent man and a very competent businessman who owns fantastic companies with very good cash flows the fundamentals of our company are very strong and we have an impeccable track record of fulfilling our depth obligations I think the Hindenburg report raised really fundamental questions about investing in India whether you could trust the corporate governance at listed companies where you had your shares and were parking your own money I think it also raised broader questions about the Integrity of India's institutions whether it's the stock market regulator sebi or the law enforcement agencies and finally the Integrity of the business press in India the extent to which they've been covering diligently what's happening at leading groups like adani like Narendra Modi the prime ministers from Gujarat he's a first generation businessman comes from a community of entrepreneurs he started off running his own business then over a period of time got into exports and from then it's been this almost non-stop expansion well I've met him in some industry forums he came across as a very focused entrepreneur is the man who more than anyone else has risen both in Fame and reputation uh during the Modi years there does seem to be a very very nice parallel between the rise of Narendra Modi and the rise of Gotham adani and the rumors that he's close to them are not new rumors they've been around for 20 years go to madani and Narendra Modi have a relationship that one could describe as symbiotic adani's rise in business has coincided with modi's rise in politics first in Gujarat where Modi was chief minister at the same time that adani was rising in business and then from 2014 when Modi took power as prime minister adani's rise was if anything even more stellar he has also focused his interests on those things that what Mr Modi calls the new India is also focused on which is a infrastructure building rapidly trying to get India up to scale so that it can compete and on several fronts Mr adani's interests aligned with that of the Union government of India he also has one other thing going for him and that is you have to remember that he is playing on the India growth story India needs a huge investment in infrastructure and he is positioned right at the fulcrum where the finger needs to be put the dear that put adani on the map was when he won the rights to operate the land in Mundra the port allowed him to demonstrate that I am a competent businessman regardless of any connection which means that it opened up for him the doors to other deals I think Mr adani would like the perception to remain that he is very close to Mr Modi now how close he is to Mr body is only a question that Mr Modi could answer opposition politicians and a few Intrepid journalists have also been raising questions over adani's integrity and about possible corruption or cronyism they don't have much to work on other than circumstantial ties I don't have any evidence of this but they did these contracts the ports to some extent but the airports for sure I was in Delhi and adani had just won the right to operate six airports all of a sudden out of the blue the sky was not known as a airport operator and yet he just came in and won this massive bid thank you yes it does help to be a big entrepreneur because in relation to land allotment in local licensing government steps on the plate but they do it for everybody I would say that it's worse than that that in some senses the allegation has been that the state has been complicit with what has been going on with the adani group adani has a record of winning significant Court battles in India questions have been asked in the Press about the role of the Judiciary in the businessman's rise but nothing has ever come of these allegations which have been dismissed by the company and the government the Modi government doesn't normally comment on business stories but it has pushed back hard on any suggestion that it has a special relationship with adani this is [Music] adani has been building infrastructure projects in neighboring countries including Bangladesh and Sri Lanka and in many cases these were deals that were agreed either during or after a bilateral visit by Modi to one of these countries in Sri Lanka adani secured a 700 million dollar Container Terminal project which the government said was secured with Indian government help before backing out of that statement in Israel adani secured the concession to operate hifa Port which is Israel's second largest in Bangladesh after a visit by Modi to his Bangladeshi counterparts Sheikh Hasina won a deal for a power project which involves burning coal in India and then transmitting power over the border into Bangladesh [Music] it is a structurally important business for this government for sure because the government's strategy of national champions is hinged on the idea that these companies provide the backbone that will take India into the next phase of its growth adani discontroversy has been able to execute these ambitious infrastructure projects and for India to realize its demographic potential it needs infrastructure it needs roads it needs airports it needs energy and adani has been able to deliver that if adoni can't do that then who will strictly speaking the quote-unquote adani group doesn't exist that's just the name given to the companies in which the adani family has majority ownership and there are a lot of them at the heart of his conglomerate is adani ports and special economic zone adani power is India's largest private thermal power producer and a Donny Enterprise 's adani's Mining and coal trading operations Dani totalgas is a joint venture with France's total energies and adoni green energy is India's largest Renewable Energy company adani's other listed companies include adoni transmission and adani Wilmar and beyond that the group has a huge range of operations in sectors like airports roads and cement so recently the adani group has been on an absolute tear it's now India's biggest airport operator and last year became a media operator as well after a successful hostile takeover attempt on NDTV you know the adani business model is the same business model that is followed by many promoters in India it's a business model which says we get into those Industries where there's a regulatory framework where the government matters where the politician who's in charge of the government matters this is not new to India you've always had business houses that have flourished by being very close to governments and have taken a new advantage of this proximity he has also put his money where most people have been reticent to do so infrastructure is low return long gestation business and there are not too many people who are focused on it with the kind of laser-like sharpness that he has been many avatani's listed companies had seen their share prices rocket in recent years to levels more typical of a fast-growing Tech startup rather than say industrial outfits or utilities providers before the Hindenburg report they were clearly overvalued compared to equivalent companies in their sectors clearly valuations that out of the ordinary wood on their own probably have been sufficient for Hindenburg to want to take a closer look I started to look into him and it was incredible because it seemed that even though he was growing so fast and the share price of his companies were skyrocketing and he was obviously playing such an important role for the government and yet no one seemed to be writing about him or notice him I was repeatedly struck by how reluctant Brokers analysts were about going public with their doubts about these companies valuations when in private they could be scathing but the higher shares went the more hesitant they became the belief in adani came down to two things one The Narrative of India's Breakneck growth and his alleged connections with Modi and for a great many investors that was enough to overpower any questions about the group's financials journalists and investors were starting to ask some questions about the evaluations there were also questions about a Donny's extensive use of offshore vehicles and of the the presence in its shareholder base of a lot of investors that were funds that appeared to be only Holding adani stock but nobody could quite put it all together and in part this was because adani has a track record of going after critics of taking legal action against journalists the last 20 20 kind for the freedom of press in India and one of the reasons they have not been very kind is like in other parts of the world more and more of the press is now being controlled by billionaires who own these press vehicles and the reason they like to own this press Vehicles is firstly they make sure that any criticism of them and their businesses is a muted secondly it's a way to carry favor with politicians foreign it was a Friday I had just been to a work lunch and I get a text from a contact saying we have something that we think will be of interest to you do you want to take a look so I checked the the report and of course the first thing that you see is how the world's third richest man is perpetuating the biggest Con in corporate history as a reporter as anyone that sort of grabs your attention there are two main allegations made by Hindenburg one of which is stock market manipulation and the other one is accounting fraud there were all these offshore entities a lot of which were registered in jurisdictions like Mauritius or Singapore which only seem to invest in adani shares the Hindenburg report came out of nowhere it stunned the markets the business community and India's political class what Hindenburg did that was so effective was to bring all the facts all the rumors all the circumstantial evidence together in one place and turn it into a narrative that was credible one of adani's senior Executives came out with a video that hit back aggressively at hindenburg's claims the report is a malicious combination of selective misinformation stale baseless and discredited allegations that have been tested and rejected by India's highest courts adani came out with a 413 page rebuttal which was quite extraordinary what struck us at the Ft was the rhetoric that was used in it they called the report a calculated attack on India which seems like a strange language for a company to be using and is more reminiscent of the kind of rhetoric that you hear from India's government the report also and outcry in Parliament one of the loudest voices was mahua moycha a former Banker from the trinimal congress party she had been urging the market regulator to investigate adani's alleged Market manipulation some of the issues you raised were issues that I had raised were issues that other people had raised over the last three or four years and some of what Hindenburg pointed out was just common sense and logical at one point Raul Gandhi who's the most prominent figure in the opposition congress party stood up and gave a speech questioning all of adani's foreign deals he also held up pictures showing adani and Modi sitting together on adani's jet it's very telling that all of his remarks in the speech relating to alleged ties between adani and the Prime Minister were expunged from the Parliamentary record all this is to distract from the Panic that the prime minister is feeling that his relationship with Mr Irani is going to be exposed Gandhi was convicted of defamation in a Modi related case in Gujarat in March and then expelled from Parliament just a year before the next election in a move that his congress party have described as tit-for-tat retaliation against his public remarks about the Prime Minister and the billionaire because this government functions with the level of opacity which is not normal for most democracies and certainly doesn't pass the smell test I think the opposition was always aware of just how this government was helping its friends and their allies but given that the BJP government came to power in India on an anti-crony capitalism Wicket for them to be embroiled in a scandal that was so obviously chronic capitalistic and that too for just one man you think that's all the ingredients were in for this very um you know exciting political Financial portfolio I just remember checking in at the open day after day just watching the market value of these companies evaporate Indian promoters have been very good at managing the regulatory environment as a group so that short selling in India is not a frequent occurrence it's not that it's impossible to short shares or to short companies in India it's that it's almost impossible to make money from it you have to do it through other jurisdictions the one that is most used is probably Singapore Hindenburg could have bet against Dani through India's main stock index the Nifty 50. in which adani companies are constituents it would have been able to use a derivative called the single stock future that would allow the fam to have a weighted exposure to the group through the Singapore Exchange to do this it would need singapore-based Banks to access counterparties they would offer Security based on the whole index with exposure to India's 50 leading stocks but then sell most of the underlying shares leaving just adani companies that means hinderberg could have exposed to adani and short distributive like a normal security only crucially it could do it in Singapore and therefore avoid India's disclosure rules that makes shooting hard the timing of the report was pretty much perfect as far as Hindenburg was concerned it was a surgical strike the impact was to torpedo shares in adani companies just as it was trying to get this massive share sale out the door in January 2023 adani Enterprises launched a share offering with the aim of raising two and a half billion dollars they ultimately decided to cool it off that was I think a huge win for Hindenburg if he had managed to pull off that share offering it would have been a sliding doors moment but instead it went seriously wrong and some people say because he's a short seller you should not trust him I said because he's a short seller I trust him more why they are putting their money where their mouth is there are three key elements to adani's finances and why Hindenburg was interested in the company Share Price Corporate governance and debt levels you had a Donnie and his family officially holding the majority of his stock in some cases right at the 75 percent limit allowed under Indian Securities Law but you also had these offshore entities owning a Donnie shares and these offshore entities allegedly have links to the adani family that raises two immediate problems one does adani have a sufficient free float and two is there round tripping is there Market manipulation that is impacting the share price both of these could be a violation of Indian law so this is something I flagged way back in 2019 I wrote to the Securities and Exchange Board of India I wrote to the ministry of fine Minister of Finance and I got absolutely no answers probably what is so distinctive about adani is not that he engaged in these practices that's normal in India for most promoters but that he did it to this level where the free float was so small where his own ownership of the stock was so high in an interim report released in May a panel asked by the Supreme Court to look into potential regulatory failure relating to adani said that sebby had hit a wall in its investigation but it said the regulator had found no evidence of share price manipulation and with no indication that the authorities are going to find a Smoking Gun of any kind that might back up hindenburg's allegations the share prices of adani's listed companies have started to rise again the company has also taken steps to improve its opaque financing and corporate structure the promoters have paid off a significant amount of the shareback debt criticized by Hindenburg and brought in new investors to reduce the share of adani companies under family control florida-based gqg invested almost 2 billion dollars in March and has since increased its investment two further listings are planned at adani companies worth billions a cleaner balance sheet and new Equity financing has gone some way to reassure Banks bondholders and investors that the company is fundamentally sound if you look back 25 30 years in every country you find very aggressive entrepreneurs coming borrowing money growing Empires and many of them make mistakes they don't build solid businesses and then the market turns we see them coming down is happened in India will happen again the key point is we must distinguish between the stock price for all these people and the businesses but convincing Skeptics and political opponents is going to be a much tougher task tadani's story has revealed a lot about Indian democracy because democracy is not just living in a free country it's living in a country where the pillars of democracy all work together the image of India and Indian business has definitely taken a slight hit with the adani group no doubt about that having said that because the India grows story is so strong it has now become a Muslim market for every company in the world I think it's probably too early to say whether this story of the short seller versus the billionaire is something that has transformed Indian business or that we will have forgotten about in a year's time the issue is about the concentration of wealth and whether or not India's middle class will rise up with the success of these businessmen is it going to be like in South Korea where the chable helped lay the foundation for the economy or is it going to be like Russia where the wealth stayed in the hands of a very few oligarchs at the expense of the nation thank you

Channel: Financial Times

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Keywords: business news, finance analysis, Financial Times, finance news, international news, global news, markets, china trade, us economy, brexit, news, business, tech, india, finance, Gautam Adani, India, India business, India comapnies, Narendra Modi, Adani Group

Id: XrpKokMASjA

Length: 22min 40sec (1360 seconds)

Published: Sun Jul 09 2023