The recent days in the stock market have been a lot shaky for the Indian Conglomerate and giant Adani Group. The group has been facing multiple allegations from a research firm for fraud and stock manipulation. There is an entire report published by the group which contains numerous allegations and their proof as per the research group to short sell Adani group shares and also to undermine the entire group and its working.
The major allegations on the Adani Group are for Use of Shell companies to launder money to the group, inflating the net profits, overvaluing the stock prices through stock manipulation and more. Let’s understand the claims made by the research group.
Hindenburg Research Report
The report published has been under investigation since the last 2 years. Amidst the numerous allegations made by the group the top ones are listed below :-
Allegation 1 :- Offshore entities being the shareholders of the Adani group
The shareholders in the company are majorly the entities located offshore. This allegation is made by the firm on the basis of multiple offshore entities found. These entities function under one major group known as Monterosa Holdings. However the entities found are a way of keeping the company away from delisting. In other words this allows the firm to have 75% promoter holdings in the official case and other above the same in the name of offshore entities. Hence this is above the threshold set up by the SEBI. This also adds up a layer of protection for the form to stop the regulator from delisting itself.
Allegation 2 :- The offshore entities present a sketchy picture for the shareholders
The entities are registered under one single company Monetrosa Holdings have more than 360 Billion Rs held in the name of the Adani Holdings. They all have the same incorporator (Monterosa holdings), all of them have the same address registered and their board of directors have multiple overlapping personalities which clearly defines a pattern of influencing decisions in the companies. These entities are Elara Capital, Opal Investments and New Leaina Investments.
The background history of these firms are also not really good. The CEO of Monterosa Holdings is Jatin Mehta who is a fugitive diamond merchant. Elara Capital has a holdings of more than 99% in Adani Group and the company deals with a master Dharmesh Doshi. The scam pulled over by him is of 1030 Crore bank scam.
New Leiana Group is managed by Amicorp having major Adani holdings. This group was involved in the 1MDB scam. Lastly, OPAL Investments CEO claims openly about his ties with the Adani group.
Allegation 3 :- Stock Parking
In simpler terms stock parking is some other entity holding the shares on your behalf. The Adani Group is holding its shares with multiple organisations and these are running the share prices of the company to the sky. This provides the group with major liquidity requirements and Gautam Adani does not have to worry about his stake sale as it is being parked in the name of other people.
Allegation 4 :- Stock Manipulation
The entities that are registered offshore are being managed for manipulating the stock prices of the Adani group listed companies. The promoters have been accused of assisting Ketan Parekh to manipulate the group’s scripts. The SEBI has also prosecuted more than 70 firms including Adani Group Promoters for pumping the share prices of the Adani Enterprises Share. The Adani group does this in a very swift manner. The company transfers all its money to shell companies located offshore. This way the shell companies get funding to buy the Adani group’s shares and hence the price is pumped by a heavy growth in volume.
It is been said that these firms listed offshore are responsible for 30 to 50% of the entire volume in the Adani group companies
Allegation 5 :- Shell Companies lending money to Adani Group and manipulating the earnings of the company
The shell companies created by the Adani Group lend a major chunk of money to it. There is an office out of order which has given a loan to the firm worth 15 Billion Rs in the Ahmedabad City itself. This money flowed back to the company in the form of major projects. In other words this entire scheme is to make the black money turn legit.
Apart from this the shell companies buy the assets that need to be written off by the Group. This way the net profits of the firm are more than they are in reality. This makes a pretty good case for the company to jack up the profits. By this it can post a profitable quarter for the shareholders.
One another concern is regarding the working pattern of audit in the company. The auditing is done by freshers and the firm who handles it has only 11 employees.
However the report published has above information we will discuss the after effects of this report in the next article.