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NEW DELHI, Jan 30 (Reuters) – India’s Adani Group issued a detailed response on Sunday to a Hindenburg Research report that caused its shares to plunge $48 billion, saying it complies with all local laws and has done necessary regulatory disclosures.
The conglomerate led by Asia’s richest man, Indian billionaire Gautam Adani, said last week’s Hindenburg report was aimed at allowing the US-based short seller to post a profit, without citing evidence.
For Adani, 60, the stock market crash has been a dramatic setback for a school dropout who rose rapidly in recent years to become the world’s third-richest man, before slipping last week to seventh in the ranking. Forbes Rich List.
Adani Group’s answer comes as its flagship company, Adani Enterprises (ADEL.NS)goes ahead with an investment of 2.5 billion dollars sale of shares. This has been overshadowed by the Hindenburg report, which marked concerns on debt levels and the use of tax havens.
“All transactions made by us with entities that qualify as ‘related parties’ under Indian laws and accounting standards have been duly disclosed by us,” Adani said in the 413-page response issued late Sunday.
“This is fraught with conflicts of interest and is solely intended to create a fake stock market to allow Hindenburg, a recognized short seller, to make massive financial gains through illicit means at the expense of countless investors,” he added.
Hindenburg did not immediately respond to a request for comment on Adani’s response on Sunday.
His report questioned how the Adani Group has used offshore entities in tax havens such as Mauritius and the Caribbean islands, adding that certain offshore funds and shell companies “surreptitiously” own shares in Adani’s publicly traded companies.
The investigative report, Adani said, made “misleading claims about extraterritorial entities” without any evidence.
Adani said Thursday that he is considering taking action against Hindenburg, who responded the same day saying he would welcome such action.
Hindenburg’s report also said that five of Adani’s seven key publicly traded companies have reported current ratios, a measure of liquid assets minus short-term liabilities, below 1, suggesting “increased liquidity risk at short term”.
It said Adani’s key publicly-listed companies had “substantial debt” that has put the entire group on a “precarious financial footing” and that shares in seven Adani-listed companies are down 85% due to what he called “sky-high valuations.”
Adani’s response indicated that over the past decade, his group companies have been “consistently deleveraging.”
Defending its practice of pledging shares of its backers, or key shareholders, the Adani Group said that raising financing against shares as collateral was common practice globally and that loans are made by large institutions and banks on the back of a thorough credit analysis.
The group added that there is a robust disclosure system in place in India and that the commitment positions of its promoters in portfolio companies have been reduced from more than 50% in March 2020 in some listed shares to less than 20% in December 2022. .
The Hindenburg report, and its fallout, is considered one of the biggest professional challenges facing the billionaire, whose business interests range from ports, airports, mining and energy to media and cement.
Adani’s response included more than 350 pages of exhibits that included excerpts from annual reports, public disclosures, and previous court rulings.
Hindenburg, Adani said, had sought answers to 88 questions in his report, but 65 of them related to matters that have been disclosed by Adani’s portfolio companies in annual reports.
The rest, Adani said, relate to public shareholders and third parties, and some were “unsubstantiated allegations based on imaginary fact patterns.”
Hindenburg, known for shorting electric truck maker Nikola Corp (NKLA.O) and Twitter, said it is short Adani companies through US-traded bonds and non-Indian-traded derivatives.
Adani also responded to Hindenburg’s allegations related to the company’s auditors, saying that “all these auditors that we have hired have been duly certified and qualified by the relevant legal bodies.”
His response comes just hours before the Indian market opens, when the $2.5 billion sale of secondary shares begins its second day of underwriting. Friday’s slide sent shares of Adani Enterprises below the issue price, raising questions about its success.
In a separate statement on Sunday, Adani Group CFO Jugeshinder Singh said he is focused on the share sale and is confident it will succeed. He also said that his main investors have shown faith and continue to invest.
“We are confident that the FPO (continuing public offering) will also go ahead,” he said.
Reporting by Aditya Kalra, Aditi Shah, Jayshree Upadhyay and Anirudh Saligrama in Bengaluru; Edited by Kevin Liffey and Alexander Smith
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