Dr Nishant A. Irudayadason

Professor of Philosophy and Ethics, Jnana-Deepa Vidyapeeth, Pune.

The Adani conglomerate continued its descent into hell on the Bombay Stock Exchange. Shares in six of the group’s nine companies continued to plunge, with Adani Transmission losing 10% with the worst performance. In two weeks, Adani’s market valuation has shrunk by $120 billion. It all began on January 24 when Hindenburg Research, an American investment firm, published an investigation that accused Gautam Adani of accounting fraud and price manipulation via a network of shell companies.

The conglomerate operates in a highly centralized manner. Everything is in the hands of Gautam Adani and his family. The activities of the Adani conglomerate range from ports to airports, electricity production and distribution, coal mining, cement manufacturing, 5G, green hydrogen, and even apples. The market capitalization of its companies amounted to more than $200 billion on the day of the publication of the Hindenburg survey. Gautam Adani has diversified his group over the past two decades through fundraising and acquisitions of public and private assets but also, critics say, thanks to the complacency of the authorities and Prime Minister Narendra Modi. Its debt now stands at around $27 billion. Hence the nagging question: is the Indian banking system under threat? What will happen if Adani can no longer raise funds and repay?

On 1 February, Gautam Adani cancelled a follow-on public offer of 2.3 billion euros of shares in the face of his group’s stock market rout. The RBI has asked financial institutions to provide details of the loans granted to Adani. The banks were rather reassuring. Six institutions reported holding 886 billion in equity assets and loans partly backed by existing infrastructure ($10 billion). These assets represented between 0.6 and 1.5% of their total assets. These figures illustrate the bankers’ caution towards Adani. Long before Hindenburg’s report, they had heard of the billionaire’s controversial actions. Hindenburg is not the first company to point fingers at Adani. It’s been at least five or six years since other actors said more or less the same thing. So, in the past, we have commissioned audits to understand the capital structure, and how funds are raised and redirected. It was all the more important as it has been twenty years that the conglomerate has been growing significantly to have the expansion of its finance.

The hesitation of the Indian bankers pushed Gautam Adani to turn to international investors. Last year, it financed the $10 billion purchase of Holcim’s Indian operations from foreign banks. It also raised $2 billion from Abu Dhabi-based International Holding Company. While the risk of contagion to the Indian banking system appears low, uncertainty hangs over the conglomerate’s ability to finance its expansion and create jobs. According to the bankers, in the next twelve months, there will be no cash flow problem. Adani has the means to repay his loans and pay his expenses. After this time, it will find it difficult to raise funds to complete ongoing projects. If he fails to convince investors, he will have to sell part of his assets.

If this stoppage were to materialize, Adani’s SME subcontractors will be the first victims. The CMIE, a statistical study centre in Mumbai, has listed 22 projects in sectors such as energy, transport, and logistics, whose total cost is estimated at 4120 billion ($46 billion). These include the construction of a second airport in Mumbai, which should be completed in 2024, the expansion of the port of Mundra in the west of the country, and the development of 10 GW of solar energy in the state of Andhra Pradesh. Still, to restore its reputation, the conglomerate will have to reform its internal governance. The Hindenburg survey indicates that listed companies in the Adani conglomerate are constantly changing CFOs. Adani Enterprises, for example, has had five in eight years.

Finally, Hindenburg’s revelations about possible price manipulation are all the more embarrassing for SEBI, the Indian overseeing agency of the Stock Exchange, as these accusations had been circulating in banking circles for several years. Does Gautam Adani’s notorious closeness to Prime Minister Modi explain why SEBI did not act sooner?