Adani Group Shares Descend Amid Fresh Stock Manipulation Claims

Shares in the Adani Group fell on Thursday after renewed revelations claiming that the family of founder Gautam Adani has been roundtripping investment into his own companies to drive the share price higher.

The allegations provide some concrete details supporting claims presented by the short seller Hindenburg Research. As I explained at the time, Hindenburg in January attacked the group on multiple fronts while stating it was pulling off the "largest con in corporate history."

Flagship Adani Enterprises ANNRY (NSE) saw its share price skyrocket 25-fold between their Covid-induced bottom in the spring of 2020 and the time of the short seller's report. That made it one of the top-performing stocks not only in India but worldwide.

Hindenburg alleges that the group's US$288 billion valuation in 2022 was supported by "brazen stock manipulation and accounting fraud," most notably the use of murky offshore corporate shells to use Adani family money to buy into the Adani Group's shares.

Now the nonprofit Organized Crime and Corruption Reporting Project (OCCRP) has shared supporting documents with both The Guardian and the Financial Times that lend credence to the claims. Both publications have reported today on the findings.

Adani Enterprises closed down 3.5% today, the group's poor performance helping drag down the overall Sensex index, although the broad Mumbai market was only 0.4% in the red.

The group's sudden rise had propelled Gautam Adani to the upper echelons of the world's wealthy, with him at one point sitting as the world's third-richest person, with a net worth of US$127 billion. But his "Asia's richest man" crown slipped after the Hindenburg report, as I noted in February.

Gautam Adani has close ties to Indian Prime Minister Narendra Modi and has benefitted from multiple government contracts for his infrastructure-related businesses and utilities. Adani, who denied the claims, has attempted to summon nationalistic spirits to his aid, calling Hindenburg's claims a "calculated attack on India" and the "integrity and quality of Indian institutions."

The renewed claims do raise questions about the ability of Indian regulators to oversee the country's capital markets. The OCCRP is a network of investigative reporters. But the Adani Group has responded that its reporting is "a concerted bid by Soros-funded interests" seeking "to revive the meritless Hindenburg report," with The Indian Express expanding on those claims that the nonprofit is "George Soros-owned." It is in fact a Maryland-based nonprofit that has received financial support from the U.S. State Department, the Knight Foundation and the Open Society Foundations set up for philanthropic donations from George Soros.

Both India's stock market regulator and a high-level expert committee set up by India's Supreme Court have looked into the allegations without establishing wrongdoing or dismissing the claims. Officials "hit a wall," as the committee's report puts it, unable to determine exactly who owned the offshore funds. A new report is due in days.

Now we have names to attach to the claims. New documents that the OCCRP said it has obtained allegedly show that two men, Nasser Ali Shaban Ahli and Chang Chung-ling, spent years trading "hundreds of millions of dollars" in Adani Group stocks via Mauritius-based funds at the direction of the Adani family.

Both Ahli and Chang have long track records with Adani; they have served as board members and shareholders in the group's companies as well as companies linked to Vinod Adani, Gautam Adani's Dubai-based brother. They began setting up offshore shell companies in 2010, not only in Mauritius but also the British Virgin Islands and the United Arab Emirates.

While the two men made trades from 2013 to 2018 that drove up the price of Adani stock, resulting in profits for their own funds, the management company in charge of their investments allegedly paid a Vinod Adani company to advise them on the investments, according to the document trail..

At one point in 2017, Taiwan national Chang and Ahli from the United Arab Emirates ran vehicles holding US$430 million in Adani Group shares, the document trail shows, with all their capital invested into Adani companies. The two Mauritius funds channeled money into four offshore companies controlled by the two men and a Bermuda-based fund. The two originating funds netted hundreds of millions in profits buying Adani shares at low prices and selling them high.

The reporting shows they bought into Adani Enterprises; Adani Ports (NSE) ; Adani Power (NSE) ; and Adani Transmissions (NSE) . Their stakes ranged from 8% to 13.5% in the four companies. Chang and Ahli have been established in other legal proceedings as directors of Adani-linked companies, with Chang even sharing a residential address in Singapore with Vinod Adani on the paperwork in one legal case.

Shares in Adani Transmission fell 3.5% today, with Adani Ports down 3.2% and Adani Power down 1.9%.

While the roundtripping would itself drive up the share price, it is also against Indian securities law for majority owners of a business to own more than 75% of their own company. Having associates buy up the stock could create an artificial sense of scarcity for the shares, the OCCRP states, with the tiny free float driven to those sky-high prices.

The Adani Group has denied the allegations and attempted to smooth over the matter by saying regulators have already looked into it, which they have, but without reaching a conclusion. The group did admit in March that Vinod Adani is part of Adani's "promoter group," with control over company affairs and insight into its operations. At the same time, the Adani Group has said that Vinod Adani has "no role in the day-to-day affairs" of the group and therefore cannot know where money invested into the group originates.

The Adani Group responded to The Guardian that the new documents presented by the OCCRP were nothing new.

"Contrary to your claims of new evidence/proofs, these are nothing, but a rehash of unsubstantiated allegations levelled in the Hindenburg report," the group said, citing its response to the Hindenburg allegations. "Suffice it to state that there is neither any truth to nor any basis for making any of the said allegations against the Adani Group and its promoters and we expressly reject all of them."

While stock watchdog the Securities and Exchange Board of India (SEBI) has repeatedly investigated suspicious stock market activity involving Adani, it has failed to get to the bottom of the issues. Indeed, evidence presented to SEBI in early 2014 sparked early activity at the regulator that seems to have been dropped after Modi was elected that May.

Opposition politicians have also raised links to Adani in parliament, clearly looking to score points against Modi. But the nationalist leader's crackdown on free speech, the press and any and all opposition has quashed those efforts. SEBI is due shortly to deliver another report on its investigation to the supreme court.

Gautam Adani was born in the state of Gujarat and rose to prominence there while Modi came to be chief minister of the state. When Modi won election, he flew to Delhi on an Adani's private plane. The market value of the group rose from US$8 billion in 2013, before Modi's election, to US$288 billion in 2022 as the group won contracts for ports, power plants, highways and airports.

There will be more to this story, and we can only hope Indian stock regulators do finally get to the bottom of the ownership of the funds involved. But the political pressure brought to bear so far has prevented that outcome.

At the time of publication, McMillan had no positions in the stocks mentioned.