Ed. note: Adani Group has said that a Grant Thornton audit is simply a “market rumor.” Video update at the bottom.
Earlier this month, short seller Hindenburg Research dropped a report called Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History (report here) full of bullet points outlining the findings of Hindenburg’s two-year investigation into the Indian conglomerate. Among the various accusations: shoddy controls, nepotism, questionable shell company relations, and poor transparency (we’re being mild here).
A limited number of bullets from the report (yes this is “limited”):
- Many of the Vinod Adani-associated entities have no obvious signs of operations, including no reported employees, no independent addresses or phone numbers and no meaningful online presence. Despite this, they have collectively moved billions of dollars into Indian Adani publicly listed and private entities, often without required disclosure of the related party nature of the deals.
- We have also uncovered rudimentary efforts seemingly designed to mask the nature of some of the shell entities. For example, 13 websites were created for Vinod Adani-associated entities; many were suspiciously formed on the same days, featuring only stock photos, naming no actual employees and listing the same set of nonsensical services, such as “consumption abroad” and “commercial presence”.
- Our research indicates that offshore shells and funds tied to the Adani Group comprise many of the largest “public” (i.e., non-promoter) holders of Adani stock, an issue that would subject the Adani companies to delisting, were Indian securities regulator SEBI’s rules enforced.
- Adani Group’s obvious accounting irregularities and sketchy dealings seem to be enabled by virtually non-existent financial controls. Listed Adani companies have seen sustained turnover in the Chief Financial Officer role. For example, Adani Enterprises has had 5 chief financial officers over the course of 8 years, a key red flag indicating potential accounting issues.
- The independent auditor for Adani Enterprises and Adani Total Gas is a tiny firm called Shah Dhandharia. Shah Dhandharia seems to have no current website. Historical archives of its website show that it had only 4 partners and 11 employees. Records show it pays INR 32,000 (U.S. $435 in 2021) in monthly office rent. The only other listed entity we found that it audits has a market capitalization of about INR 640 million (U.S. $7.8 million).
- Shah Dhandharia hardly seems capable of complex audit work. Adani Enterprises alone has 156 subsidiaries and many more joint ventures and affiliates, for example. Further, Adani’s 7 key listed entities collectively have 578 subsidiaries and have engaged in a total of 6,025 separate related-party transactions in fiscal year 2022 alone, per BSE disclosures.
- The audit partners at Shah Dhandharia who respectively signed off on Adani Enterprises and Adani Total Gas’ annual audits were as young as 24 and 23 years old when they began approving the audits. They were essentially fresh out of school, hardly in a position to scrutinize and hold to account the financials of some of the largest companies in the country, run by one of its most powerful individuals.
The last auditors to touch Adani were the prodigy partners mentioned above. At the time that story dropped, there was mention of getting a Big 4 firm to give Adani a look and an Adani investor with $3 billion in exposure said it “welcomes the announcement by Adani to mandate one of the ‘big four’ accounting firms to carry out a general audit,” though no such arrangement was announced. We here at GC wondered out loud if Big 4 firms would even touch this mess, a report in Reuters yesterday answers in the negative that no, no they won’t.
India’s Adani Group has appointed accountancy firm Grant Thornton for independent audits of some of its companies in a bid to discredit claims by short-seller Hindenburg Research that have battered its stocks and bonds, two people familiar with the matter said on Monday.
The appointment marks the first major effort by Adani Group to defend itself in the wake of a Jan. 24 report by Hindenburg that accused it of improper use of offshore tax havens and stock manipulation.
The conglomerate, led by billionaire Gautam Adani, has strongly denied the allegations but investors remain concerned. Shares in the group’s seven listed subsidiaries have cumulatively lost about $120 billion in market value in the last three weeks.
The source told Reuters Grant Thornton has been hired to conduct independent audits of some Adani Group companies, and that GT would look at whether related-party transactions at Adani Group complied with corporate governance standards. We are eager to hear what Grant Thornton finds.
Update: Adani Group denies the Reuters report.