The Adani vs Hindenburg row explained, from $107 billion loss to FPO being called off

Adani Enterprises on Wednesday (February 1) announced the withdrawal of its Rs 20,000-crore follow-on public offer (FPO) amid current market volatility. The announcement came a day after the company's FPO was fully subscribed on the last day of the offer on Tuesday.

The decision has come hours after shares of Adani Group of companies saw a huge crash on Wednesday, triggering volatility in the share market that went up after Union Finance Minister Nirmala Sithraman presented the Union Budget 2023.

Gautam Adani’s businesses have lost $107 billion in a week, one of the biggest wipeouts in India’s history, reported Bloomberg.

What did the company say? "The Board of Adani Enterprises Ltd., (AEL) decided not to go ahead with the fully subscribed FPO. Given the unprecedented situation and the current market volatility, the company aims to protect the interest of its investing community by returning the FPO proceeds and withdraws the completed transaction," the company said in a statement.

"Our balance sheet is very healthy with strong cashflows and secure assets, and we have an impeccable track record of servicing our debt. This decision will not have any impact on our existing operations and future plans," the statement read.

Money to be returned to investors: The statement also said that the company is working with its Book Running Lead Managers (BRLMs) to refund the proceeds received by the enterprise in escrow and to also release the amounts blocked in your bank accounts for subscription to this issue.

Why did the group withdraw the FPO? The share prices of companies of the Adani Group kept nosediving on Wednesday also. The firms have lost Rs 7 lakh crore of their combined market capitalization in the last five trading sessions amid concerns over US-based short seller Hindenburg Research's report.

• The decline is about 38 per cent compared to the market valuation at the end of trading on January 24, the day the report was released. Adani Enterprises nosedived 28.45 per cent on Wednesday to settle at Rs 2,128.70.
• Gautam Adani in the statement said that given these extraordinary circumstances, the company's board felt that going ahead with the issue will not be morally correct.

What led to this downfall? The group's stocks have slumped after Hindenburg Research made some serious allegations in its report, including fraudulent transactions and share price manipulation at the Gautam Adani-led group.

• The 106-page report about Adani Group was released by US short-seller firm Hindenburg on January 24. The report, which raised multiple concerns about Adani Group companies, created panic among investors
• Adani Group has dismissed the charges as lies, saying it complies with all laws and disclosure requirements. It called the Hindenburg report baseless and threatened to sue the short seller.

What is Hindenburg Research? Hindenburg Research is an investment research firm with a focus on activist short-selling. It was founded by Nathan Anderson in 2017, and is based in New York City. The firm specialises in "forensic financial research", which means it looks for corruption or fraud in the business world, such as accounting irregularities.

Firm known for tumbling its targets' stock prices: Hindenburg Research has a track record of sending the stock prices of its targets tumbling in the past also. In 2020, a report by the firm on Nikola, a company in the electric-vehicle industry, was accused of staging a video to calm skepticism about its truck, one that showed the vehicle cruising on a road. Hindenburg said the video was actually just showing the truck rolling down a hill after getting towed to the top, reported AP.

• The company and its founder, Trevor Milton, received grand jury subpoenas from the US Attorney's office for the Southern District of New York and the NY County District Attorney's Office shortly after Hindenburg released its report.

Hindenburg Research's report on Adani Group: Hindenburg Research said its report followed a two-year investigation. It alleged the Adani Group had engaged in stock price manipulation and accounting fraud, among other abuses. It said its report listed 88 questions it invited the company to answer.

• The report had 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 stock in Adani's listed firms.
• Hindenburg's report also said five of seven key listed Adani companies have reported current ratios, a measure of liquid assets minus near-term liabilities, of below 1 which it said suggested "a heightened short-term liquidity risk", reported Reuters.
• It said key listed Adani companies had "substantial debt" which has put the entire group on a "precarious financial footing" and that shares in seven Adani listed companies have an 85% downside due to what it called "sky-high valuations".

Adani Group's response: The Adani Group in its response said that raising financing against shares as collateral was common practice globally and loans are given by large institutions and banks on the back of thorough credit analysis.

• Adani's response included more than 350 pages of annexes that included snippets from annual reports, public disclosures and earlier court rulings.
• Adani Group said that the report had sought answers to 88 questions in its report, but 65 of them were related to matters that have been disclosed by Adani portfolio companies in annual reports.
• Hindenburg said "Adani failed to specifically answer 62 of our 88 questions."

SEBI examining Adani Group share rout: The Securities and Exchange Board of India's (SEBI) is examining the recent crash in shares of Adani Group and looking into any possible irregularities in a share sale, Reuters reported quoting a source.