India’s securities watchdog – SEBI, discovered that twelve offshore funds that had invested in Adani group companies were found to be in violation of disclosure rules and investment limits, 

It was initially reported that SEBI had identified breaches of disclosure regulations by listed entities and offshore fund holdings exceeding limits in August of last year.

The regulator was also investigating potential connections between the Adani Group and one of the funds to ascertain if there was any concerted action with the conglomerate’s major shareholders, a claim previously denied by Adani. 

Earlier this year, the regulator issued notices to twelve offshore investors of the Adani group, outlining allegations and requesting explanations regarding violations of disclosure rules and investment limits, as per the sources.

According to the first source, the offshore funds were reporting their investments in Adani group companies at the level of individual funds. However, the regulator demanded disclosure of holdings at the level of offshore fund groups. 

According to reports, the sources disclosed that eight of these offshore funds have approached the regulator with written requests to settle the charges by paying fines without admitting guilt. 

Extremely Ironic!

The regulator identified a total of thirteen Foreign Portfolio Investors (FPIs) for scrutiny, comprising the initial eight mentioned along with five additional entities – Emerging India Focus Funds, EM Resurgent Fund, Polus Global Fund, New Leaina Investments, and Opal Investments. 

However, the investigation faced obstacles as SEBI encountered difficulties in identifying the ultimate beneficial owners of these FPIs and their potential ties to the Adani Group.

Oversight Or Deliberate?

This revelation has again sparked a debate on the transparency and regulatory oversight of foreign investments in Indian markets, raising questions about the integrity of corporate governance practices and the role of regulatory bodies.

SEBI’s investigation into the offshore investments in Adani group companies surely indicates that disclosure norms and investment regulations have been sidelined, a must in maintaining the integrity and stability of financial markets. 

The regulator’s scrutiny revealed that these offshore funds failed to comply with reporting requirements, particularly regarding the disclosure of holdings at the fund group level, instead of individual fund levels. 

Thus, this discrepancy suggests a loophole that could potentially be exploited by investors to obscure the true extent of their holdings and evade regulatory oversight.

Moreover, SEBI’s examination of the Adani Group’s ties with one of the offshore funds aims to determine whether there was any concerted action between the conglomerate’s key shareholders and the fund, raising concerns about possible conflicts of interest and market manipulation. 

The revelation that eight of the offshore funds have expressed willingness to settle the charges by paying a penalty without admitting guilt further complicates the matter. 

While this may expedite the resolution process, it raises questions about accountability and the efficacy of penalties as a deterrent against future violations. 

SEBI’s insistence on accountability and transparency in dealings with offshore investors sends a strong signal that regulatory oversight will not be compromised, regardless of the parties involved, but is it?

SEBI’s efforts to hold these offshore investors accountable have faced challenges, particularly in identifying the ultimate beneficial owners of the funds and their potential ties to the Adani Group. 

The opacity surrounding offshore investments and the complexity of global financial networks make it difficult for regulators to trace the origins of funds and uncover hidden affiliations. 

Touching The Hornet’s Nest

The controversy surrounding the Adani offshore investments also reignites the debate on the role of short-sellers and activist investors in exposing potential corporate governance lapses. 

Particularly in reference to the Hindenburg report, which raised concerns about the Adani Group’s corporate structure and financial dealings, emphasises the significance of independent scrutiny in uncovering potential risks and vulnerabilities in listed entities. 

While SEBI’s investigation focuses on regulatory compliance, the broader question remains whether the concerns raised by the report were valid and if they merit further investigation.

1) Was the Hindenburg Report on Adani Group correct? 

The accuracy of the Hindenburg Report on Adani still remains a subject of debate and scrutiny. The report raised serious allegations regarding Adani’s corporate governance, financial practices, and environmental compliance. 

It accused Adani of opaque business structures, inflated valuations, and questionable dealings, sparking concerns among investors and regulators. 

Some argue that the report shed light on potential irregularities and risks associated with Adani’s operations, prompting regulatory scrutiny and investor concern. 

However, others contend that the report may have been sensationalised or exaggerated.

Adani vehemently denied the allegations, dismissing them as baseless and driven by ulterior motives.

However, the fact that SEBI is now raising questions about offshore funds is significant to ask the above question!

2) Why is SEBI acting so tough now, is it because there is a chance that BJP may not come to power after all? 

SEBI’s role and primary mandate are to uphold market integrity, protect investor interests, and enforce regulatory compliance.

However, enough speculation has been made about SEBI’s motives based on political conjecture that overlooks the regulator’s mandate and responsibilities. 

SEBI’s recent actions, including the crackdown on Adani offshore investors, stem from its commitment to maintaining market integrity, protecting investor interests, and enforcing regulatory compliance- but one cannot overlook the ‘timing’.

Is SEBI trying to clean its books as elections loom large, and the verdict will be out on 4 June? It may be getting its house in order in case of a new government.

3) Adani Group has seen tremendous growth in the last ten years, why? 

The Adani Group’s remarkable growth over the past decade can be attributed to several factors. 

Firstly, the group’s diversified portfolio spanning sectors such as energy, infrastructure, logistics, and now data centers, has enabled it to capitalise on India’s growing economy and infrastructure needs. 

Secondly, strategic investments in key sectors, including renewable energy, ports, and airports, have positioned the group as a major player in India’s infrastructure development landscape. 

However, those watching this tremendous growth from the sidelines have also pointed out one thing in particular – its proximity to BJP!

Moreover, the group’s adeptness at steering regulatory frameworks and fostering strategic partnerships has facilitated its expansion and market dominance—but as one can see in the latest SEBI report, SEBI itself has put a question mark on it!

4) The data on electoral bonds named a lot of companies but no biggies like Adani, Reliance were named, does it mean that they are clean and have no ‘money trail’ with BJP? 

While many names came out in the significant disclosure of ‘electoral bonds, ‘ the absence of prominent companies like Adani and Reliance in the data on electoral bonds raises red flags.

Does it imply that they are “clean” or devoid of financial connections with political parties, including the BJP?

Electoral funding is a complex and opaque aspect of political finance, often involving various channels and mechanisms beyond public disclosure. 

While the data on electoral bonds provides some insight into the sources of political funding, it may not capture the full extent of financial contributions or the intricacies of political patronage. 

Furthermore, the lack of disclosure by certain companies does not mean the possibility of indirect or informal financial support to political parties. 

Thus, while the data on electoral bonds offered some transparency to some extent, it may not fully elucidate the nature and extent of corporate influence on political processes.

Therefore, drawing conclusions about the “cleanliness” of companies based on their absence from electoral bond data overlooks the broader systemic issues and complexities of corporate-political relationships in India. 

The Last Bit, SEBI’s crackdown on Adani offshore investors, emphasises the importance of transparency, accountability, and regulatory vigilance in maintaining the integrity of financial markets. 

However, one cannot help but question the timing, and it remains to be seen what action will SEBI finally take on these disclosures.