| 23 June 2023
Adani Group, one of India's leading conglomerates, experienced a sharp decline in its share prices on Friday following reports that US authorities are investigating the company's representations to investors. The scrutiny comes in response to a scathing report published by US short-seller Hindenburg Research, which accused the Adani Group of long-running stock manipulation and accounting fraud.
According to sources cited by Bloomberg, institutional investors holding significant stakes in Adani Group companies have received inquiries from the US Attorney's Office in Brooklyn, New York. The focus of these inquiries is said to be the information provided by the conglomerate to its investors. Additionally, it has been revealed that the Securities and Exchange Commission (SEC) is also conducting a similar investigation into the Adani Group's activities.
The repercussions were immediately felt in the market, with Adani Enterprises, the flagship firm of the group, witnessing an initial decline of nearly 9 percent in early trade. However, by 12 pm, the stock managed to recover some ground. Other Adani Group stocks also experienced falls ranging from 2 percent to 6 percent. This sudden downward movement in share prices is concerning for the conglomerate, which had recently staged a strong recovery following the Hindenburg Research report.
The allegations made by Hindenburg Research were serious, accusing the Adani Group of employing a network of offshore companies in tax havens to manipulate share prices and financial results. The short-seller also claimed that the group violated disclosure and shareholding laws. In response, the Adani Group vehemently denied the allegations, referring to the report as "nothing short of a calculated securities fraud."
Nevertheless, the report had a significant impact on the conglomerate's share prices, resulting in a market capitalization loss of over $150 billion. Although the stocks have partially regained some lost ground, the combined market capitalization remains nearly $100 billion lower than before the report was published.
In the midst of the crisis, the Adani Group received a glimmer of hope when US boutique firm GQG Partners stepped in to purchase stakes worth Rs 15,000 crore in five Adani Group companies. Rajiv Jain, the co-founder and chairman of GQG Partners, expressed optimism about the conglomerate's infrastructure assets and affirmed the firm's intention to participate in the group's future fundraising. Jain further emphasized GQG's aspiration to become a prominent investor in the Adani Group within five years, second only to the family's stake.
The current investigations by US authorities, however, have reignited concerns surrounding the Adani Group's practices. While the inquiries do not necessarily indicate the filing of criminal or civil proceedings, the interest shown by US authorities raises questions about the company's disclosures and investor representations.
An Adani Group spokesperson responded to the inquiries, stating that the conglomerate was unaware of any subpoenas issued to investors and expressed confidence in the completeness and adequacy of the disclosures made in the relevant issuer offering circulars.
As the investigation unfolds, the Adani Group faces an uphill battle to restore investor confidence and overcome the allegations made by Hindenburg Research. The outcome of the inquiries and any subsequent actions taken by US authorities will undoubtedly have a lasting impact on the conglomerate's reputation and financial standing in the global market.
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