The intensity of the tremor of expose could be understood from the simple fact that Gautam Adani, the creator of the apparition, slipped from the position of third richest businessman to seventh place within 24 hours of the expose. But it is sad that his slithering has traumatised he economic health of the banking sector and crores of investors who have put their money in Adani companies. The players of the stock market put the total money which the investors have lost to 11 lakh crores.

This is the worst ever scam that has happened in Independent India. This attracts more attention for the reason that it has happened during the rule of Narendra Modi who while occupying the office of prime minister had promised to abolish corruption and deceit. This nature of fraud nevertheless makes it amply clear that this nature of fraud could not have been carried out without the political patronage. People are yet to forget the Harshad Mehta episode.

The fraud exposed by Hindenburg makes it the worst kind of stock manipulation scam carried out in India. This has turned the banks and the banking system itself vulnerable. The banks have ceased to be custodian of the financial trust of a common individual. Adanis preferred to take to the route of fraud on the plea of helping India’s development. The worst sufferer of the Adanis manipulative skill has been the LIC which had invested nearly 77000 crores in 5 companies of Adani. If the LIC sources are to be relied, the corporation lost nearly 18 thousand crore.

Like Mehta and other big stock-market scams that took place during the last forty years, Adanis also exploited vulnerabilities of the banking system. None can deny Adani’s success owed to his closeness to Narendra Modi. It is an open secret that Modi has promoted Adani. The meteoric rise of Adani started when he offered support to Modi, the then Gujarat chief minister, in 2003.

He has long list of government favours and patronage. Obviously for him getting debt from the public sector banks was not at all a big problem. During Modi’s tenure as CM, the group’s revenue had soared from $ 765 million in 2002 to $ 8.8 billion in March 2014. This has been quite a phenomenal rise as Adani had set up his business in Ahmedabad in 1988.

Adani was able to obtain land from the Modi-led state government for his port and special economic zone (SEZ) projects almost at throwaway price — between Re 1 and Rs 32 per square metre, much lower than what the other companies paid for land when they set up units in the state.

Nonetheless CLSA (Credit Lyonnais Securities Asia) has assured the Indians that the financial condition of the Indian Banks would not be affected by the financial operations of the Adanis. It estimates public sector bank debt accounts for 40 per cent of Adani group's overall debt. Of the top 5 of group's companies, only 3 have relatively high share of bank debt. But the two main questions remain to be answered; what will happen to the small depositors? Whether their money is safe. The second is how and who will protect the financial stakes of the small time investors in the shares of Adani companies?

The CLSA estimates that the Adani Group’s bank debt is Rs 70,000-80,000 crore of the Rs 2 lakh crore debt in FY22. The fact is public sector banks have lent twice as much to the Adani group as private banks. This irresponsible act of the banks has exposed the financial risk crores of Indians who have poured their savings into LIC and SBI were facing. If, as alleged, the Adani Group has artificially inflated the value of its stock through manipulation, and then raised funds by pledging those shares, then SBI and other public sector banks face the danger of heavy losses in the event of a fall in those share prices.

In its latest report the CLSA points out that the share of bank funding in overall Adani group debt is less than 40 per cent. Does it think that in the Indian perspective this amount is negligible? CLSA points out that, of the top five Adani Group companies only three; Adani Power (67.6 per cent), Adani Green (43.3 per cent), and Adani Enterprises (43.7 per cent) had high share of bank debt.

Anyone would take Hindenburg’s words granted as it has a 32 year long history of researching the market operations, providing global investors with insights, liquidity and capital to drive their investment strategies. But the company, having direct links to China, owes the moral responsibility to explain why it did not uncover the plot of Adani before. Was it under certain political obligation not to expose the dirty game? Obviously it is difficult for the people of India to accept its explanation that banking system was safe.

This is the second time in five months that an overseas entity has put out a report critical of the Adani group which has been expanding at a rapid pace and has made the owner Gautam Adani one of the world’s top three billionaires. Last September, Credit Sights, an arm of credit rating agency Fitch, had said its report that the group was deeply overleveraged and could tumble into a debt trap with a possibility of a default.

Naturally the track record of Adani has always been under scanner. It is certainly not to blame the CLSA. But the fact cannot be denied that how could this nature of fraud evade the eyes of such organisation. The officials of India’s central bank, Reserve Bank of India, was also aware of the misdeeds of Adani’s but it maintained a mysterious silence. Obviously it was under the pressure of its political master. Really it is beyond comprehension that if the detail information and clinching documentary evidences of the game of Adanis was making around the financial market, how could RBI was not aware of it? Strange enough it did not find fault with Adanis while opening the door of its chest for Adanis.

Adani occupying the third slot amongst the richest persons in the globe should have alerted the SEBI and other organisations, even the Home Ministry. India had already seen some businessmen making huge fortune under Modi government and fleeing the country. Chairmen of the scheduled bank laying prostrate before Modi and succumbing to his diktats, has really shaken the trust of the common people in trustworthiness of these banking honchos, who are entrusted with the task to protect their economic interest. According to the stock exchange experts the small time investors have lost nearly 2 lakh crores of their hard earned money. They stand cheated. Shall not these chairmen and top banking officials be framed for aiding and abetting this financial crime?

Hindenburg has accused Gautam Adani of ‘brazen’ stock price manipulation and cross-border financial and accounting shenanigans involving entities established in offshore tax havens. It has even challenged Adanis to prove its charges wrong in the court. It provided Adanis with 88questions to prove its innocence. But Adani could not dare to accept its challenge. This is sufficient proof of his involvement in scam;

Hindenburg also raised several red flags over corporate governance. It has drawn attention to the fact that Adani Enterprises during its 8 years of existence had five chief financial officers (CFOs). Obviously this had some ulterior motive. It has also sought to know that why an entity like Adani Enterprises and Adani Total Gas should engage a tiny firm called Shah Dhandharia that had just four partners and 11 employees to audit its accounts. It raised questions about the ability of the firm to handle complex audit work considering that Adani Enterprises alone had 156 subsidiaries and many more joint ventures and affiliates.

Hindenburg Research said it had carried out a two-year investigation that had uncovered serious irregularities in related party transactions between the group’s listed and private entities, and stock price manipulation involving a notorious stockbroker who has been barred from Indian bourses. “Evidence of stock market manipulation should not come as a surprise. (Market watchdog) SEBI has investigated and prosecuted more than 70 entities and individuals over the years, including Adani promoters, for pumping Adani Enterprises’ stock,” Hindenburg said.

Though Adani had emphatically denied that its FPO has been lowered, Adani Enterprises tumbled below the FPO floor price of Rs 3,112 per share and closed the day at Rs 2,762.15, down 18.5 per cent. The three companies recently acquired by the Adani group — Ambuja Cement, ACC and NDTV — also wilted.

As an attempt to salvage the situation Adani group also released the 18-page presentation titled “Myths of Short Seller” which made two key assertions: first, it said, eight of the nine public listed entities were audited by one of the Big Six auditors, including Ernst & Young and Walter Chandiok & Co. The unlisted Mumbai International Airport Ltd (MIAL) is audited by Grant Thornton, it added. But what is importance is Adanis did not contradict Hindenburg’s charge that the statutory auditor of Adani Enterprises was Shah Dhandharia.

Last year CreditSights, a fixed-income research firm owned by the Fitch Group had in its report called the group “deeply over-leveraged” and suggested it could “unravel Adani’s vast business empire”. Besides a high debt at the group level, the US research firm highlighted that many of the group’s firms aren’t also generating free cash flows that can be used to repay loans.

Parliament’s budget session is opening on January 31. Members have to discuss the Adani affairs since it involves the interest of the public sector banks, LIC and lakhs of small middle class investors. It is not the case of just one company or attack by a foreign research firm on India. The opposition members have to see that the truth comes out. (IPA Service)