For the past eight months, the Adani group has been doing its best to recover from the damage caused by that damning Hindenburg report. Just as it seemed to have made a comeback, an explosive global investigation adds names and other details that seem to confirm those allegations.
Researched by: Nirmal Bhansali & Anannya Parekh
Remind me about Hindenburg?
It is a New York-based shortseller—an investment firm that bets on companies failing. And it often issues forensic financial reports on various companies—and they’re rarely flattering. Back in January, in an explosive 32,000-word report, the New York-based Hindenburg Research alleged that the Adani Group has engaged in a years-long scheme of fraud and stock market manipulation. All the dirty money words were thrown in: Adani has pulled off the "largest con in corporate history."
The context: Indian stock market regulatory rules set a 75% ceiling on the number of shares that a promoter can own in their publicly traded company. The other 25% has to be sold freely on the stock exchange—to prevent manipulation of the shares’ price. Among the largest non-Adani holders of its stock are companies outside India. They are called "foreign portfolio investors" and own roughly 20%.
Given this context, the report made three key allegations:
One: Stock manipulation. Hindenburg’s report found that four such supposed offshore funds are tied to Adani. If you add these suspected entities to promoter ownership, then Adani effectively owns more than 90% of his own stocks. He was, therefore, able to create an artificial situation of scarcity—where there isn’t a lot of Adani stock available to buy in the open market. This drove the price up. Adani then used this artificially inflated value of his shares and company to raise gargantuan loans.
The unanswered question: The actual people behind these offshore entities like Elara Capital. Hindenburg was never able to identify them.
Two: Accounting fraud. Here’s how it happened, according to Hindenburg:
As Hindenburg followed the money trail across the network of Adani's companies, they found a pattern. First, a Mauritius-based company, secretly owned by Adani, with no real business behind them, would pump money into an Adani private entity in India—which is not on the stock market. And then this private Adani company will send money to a public Adani company—the ones on the stock market.
In all, Hindenburg identified 38 shell entities controlled by Gautam’s big brother Vinod Adani or close associates in Mauritius. Why do this: It lets you “show a company is making money when it’s not—it’s just money going round and round.”
Three: No oversight of Adani’s financial activities. Adani Group had a tiny auditor named Shah Dhandharia to oversee the activities of its multibillion dollar empire. As for the government:
In its review, Hindenburg found that the Adani group had been the focus of four major government fraud investigations in the past, which have alleged “money laundering, theft of taxpayer funds, and corruption, totalling an estimated $17 billion.” But they also note a decade-long pattern of leniency: despite detailed investigative records by the government’s agencies, “virtually every government action has either been stalled, stonewalled or dismissed by other arms of the government.”
The immediate fallout: Adani group stocks took a beating—falling up to 20% after the damaging allegations. Its seven listed companies lost a combined $48 billion in market capitalisation. The Supreme Court appointed a committee to investigate the claims—and separately demanded a report from stock market regulator Securities and Exchange Board of India (more on that later).
Ok, what’s new about this investigation?
The investigation: was conducted by the Organised Crime and Corruption Reporting Project (OCCRP)—which is an investigative reporting platform for a global network of independent media centres and journalists. The OCCRP gained access to documents—including files from multiple tax havens, bank records, and internal Adani Group emails. These were shared and analysed by The Guardian and Financial Times. According to the organisation, these documents were “corroborated by people with direct knowledge of the Adani Group’s business and public records from multiple countries.”
The big new finding: It identified two of the 13 offshore entities involved in making large investments in Adani Group stocks—Emerging India Focus Fund (EIFF) and EM Resurgent Fund (EMRF). Most of the money in these Mauritius-based funds was traced back to two individuals: Nasser Ali Shaban Ahli from UAE and Chang Chung-Ling in Taiwan.
The convoluted path: The money ended up in these two funds via four companies:
- Lingo Investment Ltd (BVI), owned by Chang;
- Gulf Arij Trading FZE (UAE), owned by Ahli;
- Mid East Ocean Trade (Mauritius), of which Ahli was the beneficial owner
- Gulf Asia Trade & Investment Ltd (BVI), of which Ahli was the “controlling person.”
They channelled hundreds of millions of dollars into a Bermuda-based investment fund called the Global Opportunities Fund (GOF). This fund in turn funnelled the money into those two Mauritius funds—Emerging India Focus Fund and EM Resurgent Fund.
The stake: As a result, Chang and Ahli owned significant stakes in Adani Group companies. In 2017, they collectively held 13.5% in Adani Enterprises; 12.8% in Adani Power; and 14.4% in Adani Transmission. By March 2017, the Chang and Ahli offshore companies had invested $430 million—100% of their total portfolio—into Adani company stock.
The damning connections: What makes this truly damning—and illegal—is the extensive connections between Chang and Ahli. The two men were mentioned in a Directorate for Revenue Intelligence investigation into an illegal diamond trading scheme in 2007:
A DRI report described Chang as the director of three Adani companies involved in the scheme, while Ahli represented a trading firm that was also involved. As part of the case, it was revealed that Chang shared a Singapore residential address with Vinod Adani, the low-profile older brother of the Adani Group’s chairman, Gautam Adani.
Also this: The evidence isn’t limited to just an old paper trail. According to OCCRP, the fund managers in charge of Chang and Ahli’s investments in EIFF and EMRF “received direct instructions on the investments from an Adani company.” The company was called Excel Investment and Advisory Services Limited. It is based in the UAE—where ownership records are confidential.
But the agreement between Excel and EIFF and EMRF to provide advisory services was signed by bada bhai Vinod Adani. As recently as 2015, Excel was owned by a company called Assent Trade & Investment Pvt Ltd. controlled by Vinod Adani and his wife. And Mauritius documents for Assent show that Vinod Adani is still a board director. And just as damning are the internal emails at the two funds:
An internal email exchange suggests that, in connection with an upcoming audit, fund managers were concerned that they didn’t have sufficient paperwork to justify following Excel’s investment advice. In one of the emails, a manager instructs several employees to produce records that would justify the reasoning behind the investments. In another, a manager makes a request to obtain a report from Excel which should recommend investing in “more than the number of securities into which the fund has [actually] invested so that it can be demonstrated that the [investment manager] used their discretion to make the selection of investments.”
The Indian Express investigation: The newspaper’s analysis of documents shared as part of the Pandora Papers investigation further seals this connection. Let’s loop back to that company owned by Ahli—Gulf Asia Trade and Investment Limited. A month after its incorporation in May 2011, Ahli seems to have sold “his 100% shareholding” to Rakesh Shantilal Shah: “This also included a draft Power of Attorney ‘to be exercised singly’ by Shah to invest in properties and stocks in the name of the company.” And who is Shah?
Rakesh Shantilal Shah in 1996 replaced Vinod Adani’s wife Ranjanben as director in GA International Inc (Bahamas), a company set up by Vinod and Ranjanben in 1994. Rakesh Shantilal Shah also served as director in Adani Global FZE (Jebel Ali, Dubai) along with Vinod Adani.
As for Chang: The day his company Lingo Investment Limited was incorporated, it granted Power of Attorney to Tejal Ramanlal Desai to invest in properties, stocks etc. And who is Desai? According to the Indian Express, “An April 2022 order of the Principal Commissioner of Customs (Ahmedabad) identifies Tejal Desai as an employee of Adani Global FZE.”
The main takeaway: If Vinod Adani was indeed controlling a significant stake in Adani Group companies via Ahli and Chang, it is a gross violation of SEBI rules. To be clear: The source of Ahli and Chang’s funds—which they channelled into Adani companies—is still unknown.
Umm, what is our government doing?
Not very much. It had very little to say about the Hindenburg report. The Supreme Court, however, set up an expert committee in March to investigate whether there was a failure to monitor and investigate Adani Group’s activities. Separately, the Court also asked SEBI to investigate if Adani violated the 75% ceiling on promoter stake—and whether there was any manipulation of stock prices.
The expert committee: proved to be a dud—despite the presence of luminaries such as Nandan Nilekani (Infosys Chairman) and former Supreme Court Justice A M Sapre. In May, they basically let SEBI off the hook:
Despite involving various Indian and overseas agencies in the investigation across multiple countries, "SEBI has drawn a blank", the panel's report said, adding that trying to prove who had invested in foreign portfolio investors (FPI) who then pumped money into Adani and figure out the ultimate beneficial owner could be a massive task. "It is evident that such an exercise could be a voluminous one but potentially a journey without a destination."
Except we now know the destination—though the original source of the hundreds of millions of dollars is still uncertain.
As for SEBI: The agency has repeatedly asked for extensions—most recently on August 14 when it asked for an additional two weeks to complete its task. On August 25, it put out a status report that did not reveal any findings from its investigation.
Point to note: The OCCRP investigation also claims that SEBI had been alerted back in 2014 by the Director of Revenue Intelligence about suspicious activity around Adani stock—but the matter was never pursued.
The bottomline: In recent months, it finally seemed politically safe to cuddle up to Adani again. The prime minister was recently in Greece making a pitch for Adani—who wants to acquire one or more ports in the country. This is not good timing for the government.
The findings of the investigation are split across three publications—Financial Times (paywall), The Guardian and the OCCRP website. Indian Express (paywall) offers followup reporting which is just as interesting. You can read our two part series on the Hindenburg report here and here. This substack newsletter by Anuj Srivas offers a clear breakdown of the findings, as well.