Swiss Authorities Freeze Adani’s Fortune. Will this latest blow be the end of the Adani Group’s dominance?

On September 12, 2024, Hindenburg Research, a prominent US-based financial research firm, came out with an explosive report that Swiss authorities had frozen over $310 million, in accounts linked to the Adani Group. The report said the funds were part of an investigation into alleged money laundering and securities fraud in 2021. The charges have Centered on how offshore entities may have been used to launder money and inflate the stock prices of Adani Group companies.

To these presentations, the Indian billionaire Gautam Adani-led Adani Group shot back without wasting any time, trashing them as unfounded, illogical, and absurd. It denied appearing in Swiss court proceedings, and none of its bank accounts had been frozen. Here is the latest engagement in the most protracted battle between Hindenburg Research and the Adani Group.

Adani Group and Hindenburg Research

The Adani Group is a multinational conglomerate company and the largest in the country, with an interest in sectors like energy, logistics, infrastructure, agribusiness, and real estate. Its chairperson is Gautam Adani, who founded it in 1988.

It started as a commodity trading company and proliferated in businesses across various industries. It was a fact that, if the 2020s were anything to go by, then the Adani Group was indeed going to be the cornerstone in India’s infrastructure development-particularly in renewable energy, which catapulted it into the prominent player status on the world stage.

But with that fantastic growth comes a question of transparency, corporate governance, and regulatory oversight. Despite those, Gautam Adani emerged to be one of the richest in the world, with his net worth reaching over $100 billion at its peak.

Hindenburg Research

On the other hand, Hindenburg Research is a US-based short-selling research company that brings out reports exposing fraudulent and unethical dealings in publicly traded companies. This company was founded by Nathan Anderson back in 2017 and is specialized in forensic financial research.

Hindenburg became one of the prominent firms to have successfully made headlines after publishing disrepute reports against various companies like Nikola Motors, amongst many others, whose investigations also brought drastic declines in stock prices.

Investigations by Hindenburg often take several months and involve interviewing insiders, reviewing regulatory filings, and other investigative techniques. Typically, they short the stock of companies they believe have perpetrated fraud and profit if the price drops after a report is published.

January 2023 Hindenburg Report on Adani Group

The Allegations

The latest fight between Hindenburg and the Adani Group began this January when Hindenburg issued a blistering report accusing the conglomerate of stock manipulation, accounting fraud, and other unsavory business practices. The report charged the Adani Group of inflating the stock prices of its publicly traded companies using a network of offshore shell companies based in tax havens like Mauritius and the British Virgin Islands.

Hindenburg’s report cited several concerns, including the following:

1. The firm claimed that groups allegedly controlled by Gautam Adani’s relatives or close associates bought big blocks of Adani stock through offshore accounts, which drove up valuations to broadly unsustainable levels.

2. Hindenburg claimed that Adani stocks had attained higher valuations than their peers, mainly due to stock manipulation.

3. The report again mentioned that the Adani Group has high debt levels and that the conglomerate is highly overleveraged.

4. Hindenburg also questioned the independence of auditors and the board members of the Adani Group, citing that many of those people have been very close to the group, which may affect their objectivity.

It concluded that the Adani Group was on the brink of collapse due to unsustainable financial practices and warned investors.

Short-term Impact

For this reason, publishing the Hindenburg report sent shockwaves to the bottom of the Adani Group. In days, the market capitalization of Adani companies plunged and erased about $150 billion in value. The personal fortune of Gautam Adani plunged precipitously, and his ranking on the Forbes Billionaires List fell from third richest person in the world to fifteenth in only a few weeks.

According to the report, SEBI, or the Securities and Exchange Board of India, initiated an investigation into the financial practices of the Adani Group. However, the Adani Group categorically denied all allegations in the Hindenburg report and termed it an “attack on India.”

A detailed rebuttal claimed that such a report was part of a malicious campaign organised by elements vested with ill will in undermining India’s economic growth.

The ripples from the Hindenburg report spilled beyond the stock market. Indian regulators, such as SEBI and the RBI, were under increased pressure to take action because of the chants and protests from domestic and international investors. SEBI initiated a formal probe into the business practices of the Adani Group relating to stock manipulation, use of offshore entities, and other breaches of securities laws.

At the same time, the RBI forced Indian banks to disclose their exposure to the Adani Group, after which this conglomerate faced even more scrutiny about its debt and financial health. Nevertheless, from all those investigations, the Adani Group never admitted guilt for any wrongdoing but maintained that the company conducted business in total compliance with Indian laws.

The Switzerland Allegations: $310 Million Frozen

New Hindenburg Allegation

In September 2024, Hindenburg Research again accused the Adani Group of having Swiss prosecutors freeze over $310 million in accounts associated with the conglomerate. Hindenburg said the seized money was from an ongoing investigation related to money laundering and securities forgery that began in 2021. The charge was based on an “Adani frontman” investing in overtly opaque offshore funds used to buy Adani stocks to inflate prices.

Hindenburg based its claims on a report from Gotham City, a Swiss media outlet that claimed to have obtained court documents related to the investigation. According to the court documents, Swiss authorities had investigated the Adani Group for allegedly violating international anti-money laundering and securities laws. The funds were said to be held in several Swiss bank accounts controlled by entities linked to the Adani Group.

Adani Group’s Response

Predictably, the Adani Group wasted no time dismissing Hindenburg’s new claims. In one strongly worded statement, the conglomerate emphatically denied involvement in any Swiss court case. It also denied that any account belonging to the group was being seized or put under freeze by any Swiss authority. Moreover, Adani Group further said that none of its group companies were mentioned in the Swiss court documents referred to by Hindenburg, nor had they received any representation or request for clarification or information from Swiss regulators.

The Adani Group called the allegations “preposterous, illogical, and absurd.” Further, it said Hindenburg had indulged in another baseless attack to tarnish its image and market values. The conglomerate vowed to follow all rules and regulations at the highest levels of compliance in India and globally.

Effect of Financial Irregularities on the Adani Group’s Brand Image

The latest revelation has again hauled the conglomerate into controversy. Even when it has denied those charges, confirmation of the freezing of funds in Swiss bank accounts would be a critical blow to the conglomerate’s reputation. For a long time, the Adani Group was presented as part of India’s rise to global economic prominence; any proven involvement in financial impropriety would dent its standing in domestic and international markets.

More recently, investigations conducted by SEBI and other such regulatory bodies have raised various concerns regarding corporate governance and transparency within the Adani Group. Eventually, this will create a perception among the investors, especially the foreign institutional investors, that it is pretty risky to invest in Adani stocks as the financial dealings of the conglomerate may not be so transparent after all.

Possible Legal Implications

If these money laundering and securities fraud charges are proven valid, an investigation from Swiss authorities could lead to grave legal difficulties for the Adani Group. Under Swiss law, money laundering offenses entail severe sentences: heavy fines, to begin with, and even imprisonment of those convicted. Moreover, asset freezes would inflate investigations by the regulatory body in other countries, such as India and the United States.

SEBI, which has been probing the group since the release of the initial Hindenburg report in January 2023, can also use the findings of the Swiss investigation to strengthen its case against the conglomerate. Based on these investigations, the Adani Group could face fines, restrictions on business, and even delisting from the stock exchanges.

Ongoing investigations and allegations have also raised questions about the ability of the Adani Group to operate unabated. The conglomerate is deeply involved in infrastructure and energy projects across the country, and legal or financial setbacks will hamper its ability to complete these projects on time and within budget.

Besides that, the Adani Group also faces the risk of diminished capacity related to borrowing in case the probe results are not in favor. This will significantly impact the growth strategy of this conglomerate concerning renewable energy and infrastructure industries.

The banks and financial organizations from India and other parts of the world may be reluctant to provide loans to this group further as that will bring down the latter’s credibility. Therefore, due to the capital-intensive nature of its operations, any decline in financing will badly hurt its growth opportunities.

While the reports from Hindenburg have been impactful for companies like Nikola, in the case of Adani Group, it is multilayered, not just because of the enormity of the conglomerate itself but also because of the relative importance to the economic infrastructure of India. Long before the January 2023 report from Hindenburg, Adani Group had already come under extensive legal and regulatory scrutiny on several fronts, both domestically and internationally.

Many infrastructure and energy projects by Adani, particularly those on coal mining and transportation, have been accused of environmental violations. For example, the Carmichael coal mine project in Australia has been controversial since its conception due to purported ecological damage to the Great Barrier Reef.

Over the years, staunch opposition from environmental activists and legal hurdles have attempted to deny the completion of, or delay, the project, which, in many ways, now seems symbolic of the more sprawling debate about climate change and fossil fuel extraction.

Closer to home, the Adani Group has been accused of gaining at the hands of proximity to the powers that be in India, especially during the Narendra Modi government at the Centre. Accusations of crony capitalism have cropped up several times, with opposition political parties accusing the government of extending undue benefits to the conglomerate about allotment of land and grant of regulatory clearances.

Another issue often raised with the Adani Group is how highly leveraged the group is. The rapid pace of growth-especially in capital-intensive businesses like infrastructure and renewable energy-requires massive borrowings. Critics argue that the group may be over-leveraged, and the level of debt assumes acute risk for the company and the financial institutions that have lent to it.