EDITOR-IN-CHIEF
Today’s villains were yesterday’s heroes, or vice versa. That, after all, is how the cookie crumbles. It applies to businessmen, politicians, world leaders, even spiritual gurus. As new facts emerge, old perspectives change. So it has been with Gautam Adani, the 60-year-old chairman of the Ahmedabad-based Adani Group, who briefly became the second richest man in the world on September 19, 2022, and held on to the No. 3 spot in the Forbes rich list for a good many weeks last year. A man with the Midas touch, his group’s market capitalisation had grown nine-fold in just three years to touch Rs 18 lakh crore by December 2022, making it India’s second most valuable firm next only to the Tatas. Somewhere along the way, with a business empire spanning ports, energy, infrastructure, airports and media, his rise got tied up with the larger India story—as both its symbol and substance. That surrounding context was immaculately intact when india today put him on the cover at the end of 2022 as the Newsmaker of the Year.
Hindenburg Research, by contrast, was a name only a handful in India would have heard of before January 24. That’s the day when the US-based investment research and short-selling firm released a voluminous report levelling a series of damning allegations against the Adani Group—primarily stock price manipulation via round-tripping through a maze of offshore entities, and accounting fraud. The whole story turned at that point as pandemonium ruled the Indian bourses: Adani shares went crashing, eroding as much as $120 billion (nearly Rs 10 lakh crore) in investor wealth from the nine listed group companies in a matter of a week. By February 7, the group’s m-cap had nearly halved to Rs 9.8 lakh crore, and Adani found himself slipping to No. 17 on the Forbes list of billionaires, with $64.6 billion—more than half—shaved off his personal wealth.
When a scandal hits a large conglomerate that is India’s largest private sector power producer, ports and airports operator, consumer gas business and power transco, with big plans in solar, wind and green hydrogen, you cannot but ask: what are its likely repercussions?
Despite a counter-offensive from Adani, construing the Hindenburg report as a mala fide attack on India itself, questions loomed large on how the group would extricate itself from this imbroglio—what had seemed like an empire on which the sun had just risen seemed suddenly to have been encased in clouds of grey. The Opposition moved in for an unexpected feast, picking on Adani’s proximity to Prime Minister Narendra Modi and alleging that the ruling dispensation had fuelled his meteoric rise. He was ranked No. 609 in the global rich list in 2014 and, by 2022, was playing in the top three. They demanded that a joint parliamentary committee be set up to investigate the matter. In our cover story on Adani this week, the india today team seeks to examine three major dimensions to the fallout: How bad is the damage to Adani and his group? Will the controversy impact India’s financial and macroeconomic stability? What is the likely political fallout for the ruling dispensation?
Of these, the second question is the easiest to answer. The short answer to whether India’s financial stability will be affected: unlikely. The Indian economy is far too resilient for just one corporate tremor, even if a major one, to pull it down. Moreover, Indian public sector banks and institutions do not have an exposure substantial enough to trigger a meltdown. The State Bank of India, which has an exposure of Rs 27,000 crore to Adani companies, has said its loans to Adani are all supported by physical, cash-generating assets and they have never defaulted in the past. The Life Insurance Corporation, in a statement on January 30, said its debt and equity holdings of Rs 35,917 crore in the group were less than one per cent of its total investments. It also said it was in compliance with Insurance Regulatory and Development Authority regulations. Even Finance Minister Nirmala Sitharaman, speaking at an India Today Group-hosted post-budget conclave said the economy remained in fine fettle and there was no cause for panic. She did say, though, that the Securities and Exchange Board of India (Sebi) was looking into the issue.
The beleaguered Adani, first and foremost, will have to convince Indian regulatory authorities—market watchdog Sebi and the Reserve Bank of India—who are reportedly examining allegations of stock price manipulation and round-tripping of funds into India via offshore entities in Mauritius and elsewhere. This perhaps is Adani’s weakest link vis-a-vis regulations. Although he may be technically correct about related party transactions of his relatives, this government has acted against others with much less evidence. In the days to come, all eyes will be on how Adani services his gargantuan debt of Rs 2.1 lakh crore. What he has going for him is that his business is backed by solid assets estimated to be over Rs 3 lakh crore and the operations continue to generate a robust cash flow. There had also been some disquiet over the seemingly unreal price-to-earnings (P/E) ratio of Adani stocks—analysts reported a dramatic and unprecedented rise from just 15 times earnings in 2015-21 to 214 times earnings in the past two years.
The precipitous fall in the share price of his companies and the resultant erosion of value will also make the group less attractive to lenders, at least in the short term. Trust and governance remain paramount in raising finances, and the Hindenburg allegations have put them under a cloud. The removal of his companies from the Dow Jones sustainability index and similar action by global financiers will also imperil future fund-raising. Adani’s move to withdraw the fully subscribed Rs 20,000 crore FPO was the first gesture of confidence in his own finances, and the pre-paying of over $1 billion to release pledged promoter shares in three group companies another. Some of his companies that announced their financial results recently have performed better than expected. All these are positive signs investors were waiting for, which explains why shares of most of Adani firms rallied on the bourses on February 7 and 8, the first time after the bloodbath triggered on January 24. He isn’t out of the woods yet, but the crawl-back seems to have begun. Experts say he will now need to top up his efforts by introducing more transparency in his companies and lowering promoter control.
If investigation reveals that regulatory authorities were lax in dealing with Adani, it will affect India’s standing in the eyes of the international financial market, that too at a time when the world is looking to us as an alternative to China. There will also be political repercussions if the government is found to have extended Adani out-of-turn favours. The Opposition has so far only levelled allegations; the issue will become larger if it produces evidence implicating the prime minister. Their attempt is to resuscitate the ‘suit-boot sarkar’ narrative of 2015 and make it seem that this government is only for the rich. It will not be easy, as Modi today is regarded as the messiah of the poor and downtrodden. Survey after survey shows that despite severe economic stress, his popularity remains undimmed. The government cannot let India’s growth story be damaged. It is bigger than any one corporate’s misdeeds.