We all know the different types of scams which got famous, be it the Hashad Mehta case or the Vijay Mallya case. Well, this blog is about the alleged scam highlighted by the Hindenburg Research Company. So recently, the Supreme Court intervened in Adani’s case forming a special panel to look into this matter. Wondering what we are talking about? Keep on scrolling!
Who is Adani?
Gautam Shantilal Adani is the world’s 3rd richest person and the chairman & founder of Adani Group, an MNC involved in port development and operations in India. Adani has 7 main listed companies: Adani Enterprises, Adani Green Energy, Adani Ports & SEZ, Adani Transmission, Adani Total Gas, Adani Power, Adani Wilmar and others, contributing to approx. 1/3rd of India’s economy. He has played and been a huge part of modern India. In the past 3 years, Adani has seen immense growth in his business which directly affected India’s infrastructural development.
He started as a diamond sorter for Mahendra Brothers to become Asia’s richest person in February 2022. He was declared the 3rd richest person in the world by ‘Fortune’.
What is Hindenburg Research?
Hindenburg Research, founded by Nathan Anderson in 2017, is a short-selling and investment research firm based in New York City. It basically researches big companies and presents their loopholes to the world. In September 2020, Hindenburg published a report on Nikola Corporation alleging that the company had committed fraud stepping with lies, which held Nikola Milton responsible for fraudulent activities.
To learn the details about this company, click on the link here
What is the relation between Adani and Hindenburg Research? What’s the news?
The Hindenburg Research Firm posted a report on 24th January titled “Adani Group: How the World's 3rd Richest Man Is Pulling The Largest Con In Corporate History”. The Adani group was charged in the Hindenburg Report with widespread stock price manipulation, misrepresenting the actual value of their assets and holding over 75% of their shares through several offshore shell companies they controlled. The Securities Contracts (Regulation) Rules 1957 forbid all of these to safeguard investors.
Hindenburg also charged the Adani Group with accruing huge debts by using their assets as leverage to get multiple sizable loans totalling 2.2 lakh crores. The lending banks will be in danger if the Adani Group is unable to repay its debts since they won't be able to get their money back.
What does Supreme Court say about this?
The Supreme Court (SC) mandated the formation of a committee on Thursday in order to look into the Adani Group and recommend ways to improve the system in place to safeguard Indian investors. AM Sapre, a former SC judge, will serve as its chairman.
The committee's main goals will be to study Adani, recommend strengthening the statutory framework, and offer methods to strengthen frameworks. The committee will receive the necessary information from the Sebi chairperson.
The committee has been given two months to present the apex court with its report under seal.
Sebi has also requested that an investigation be carried out.
"SEBI shall also look into if there has been a violation of S19 of SEBI rules, whether there has been any manipulation of stock prices," Chandrachud added. Within two months, the status report will be submitted.
The decision to form an expert committee to determine whether the regulatory system needs to be tightened to protect Indian investors was made by a bench of Chief Justice DY Chandrachud, Judge PS Narasimha, and Justice JB Pardiwala. This followed the publication of a study on Adani Group by US-based short-seller Hindenburg Research, which sparked a significant sell-off. Since the report's publication just over a month ago, the Group's valuation has decreased by almost $100 billion.
Why does it matter?
The accusations made against the Adani Group imply that over a long period of time, extensive stock manipulation and accounting fraud went unnoticed by the Indian regulatory structure. If the claims are accurate, it would mean that Mr. Gautam Adani and the Adani Group amassed a net worth of more than $100 billion by dishonest means.
Conversely, even if it turns out that the Hindenburg report was fake, the harm has already been done. Following the publication of the research, the Adani Group's stock prices had a tremendous 140 billion USD drop, significantly undermining investor confidence and allowing Hindenburg Research to make substantial profits.
Conclusion
Adani’s stocks declined by 75% after the Hindenburg Research report was published. How will this impact India’s economy? This is something we all know that Adani contributed a great part to India; after all, he has been titled as the world’s 3rd richest person. What happens next? Only time will tell! Stay tuned!