February 6, 2023*

Last week, France’s TotalEnergies sought to reassure investors that it faced limited downside risk from any financial impact to India’s Adani Group, following the publication of a report by Hindenburg Research. The Paris based energy company, which has a market value of $149 billion, stated that its stakes in ventures with Adani totaled $3.1 billion or only 2.4% of the company’s capital.

This statement, that TotalEnergies potentially risky exposure to the Adani Group is small, was a reversal of the company’s stance from just seven months ago. In June 2022, the company announced a partnership with Adani “based on the remarkable complementarity of the two companies” and one which “further strengthens” their alliance. At the time, TotalEnergies and Adani announced a green energy venture in India which will invest around $5 billion in a 2 Gigawatts(GW) hydrogen electrolyzer, fed by renewable power from a 4 GW solar and wind farm.

Recently, the potential risk for TotalEnergies and other western companies and investors, with business and financial ties to the Adani Group, have come under intense scrutiny by analysts and the media. This follows a report, published on February 24, by the U.S. investment firm Hindenburg Research titled “Adani Group: How the World’s 3rd Richest Man Is Pulling The Largest Con in Corporate History.” The “INR 17.8 trillion (U.S. $218 billion) Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades,” the report states.

The Hindenburg Report “is a malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts,” according to a statement by The Adani Group.

The Adani Group was founded and is run by Gautam Adani, 60 -years-old, who is based in Ahmedabad, India. It owns power plants, transmission lines and coal mines; runs the Mumbai airport and other airports and Mundra, India’s largest port, and other ports; consumer goods including edible oils and cement; and real estate businesses in India and abroad.

In 2014, Adani’s net worth was $2.8 billion, according to Forbes. He is from Gujarat. That year Narendra Modi, the former Chief Minister of Gujarat, took over as India’s Prime Minister. Adani “has profited since fellow Gujarati Narendra Modi, India’s most influential prime minister in decades, took office in 2014,” according to AP News.

Sometimes the cooperation between the Modi government and Adani “has been less about building and more about control,” according to The New York Times. “In 2018, Adani became the operator of six profit-earning airports after the government changed rules restricting ownership to companies with aviation experience.” By September 2022, Adani’s net worth rocketed up more than 50-fold to $152 billion, according to Forbes.

Several reports in the western media have backed some of Hindenburg’s findings. For instance, The Wall Street Journal, noted that its independent research supports one of Hindenburg’s key allegations that “Offshore investment companies based in Mauritius, located in the Indian Ocean…have played a key role in Adani firms’ efforts to tap capital markets.”

The Economist stated “that Adani shares are closely held…the group's acquisition spree was fuelled by borrowing; and that the explosion in share prices was at odds with the capital-heavy, utility-like businesses it owns.”

The operating income of the Adani Group is barely higher than the interest expenses on its large debt, Aswath Damodaran, a Professor at New York University’s Stern School of Business, told Bloomberg.

Since the publication of the Hindenburg Report, the Adani Group of companies have lost more than $100 billion in value, with some of the stocks in the group falling 60% from their peak levels. This decline, analysts say, is in part due to no investigations into the allegations being announced by regulatory agencies and the Modi government. Adani’s net worth has more than halved to $61 billion, according to Forbes.

“The India Rising story hit some turbulence last week,” writes Damodaran on his blog. “The ingredients that led to the Adani stock price meltdown last week, which include an ambitious family group obsessed with control, a financial market where trading momentum trumps financial fundamentals and a capital market (debt and equity) where governments and regulators put their thumbs on the scale, are embedded in many Indian companies, and represent the weakest links in the India story.”

Adani’s $108 Billion Crisis Shakes Investors’ Faith in India, was the headline of a story by Bloomberg. If the allegations against Adani “are found to be true, or if the Indian government doesn’t investigate them, investors might become skeptical about putting money into India’s (green) energy transition,” a report in TIME stated.

This year through February 3, the MSCI India Index dropped 4.2% compared with an 8.6% gain in the emerging-markets index. Foreign institutional investors, apparently spooked by allegations against the Adani Group, sold a net $4.2 billion in Indian equities in the year through February 3, according to The Wall Street Journal.

MSCI said, starting March 1, it will cut the weightings of four Adani companies, including the flagship Adani Enterprises, in its emerging markets indexes after reassessing the number of shares that are freely traded. Also, Moody’s cut the ratings on some Adani companies.

The concern, according to The New York Times, is “that the politically connected Mr. Adani somehow got a free pass,” from India’s financial regulators. The question now, the paper added, is “whether Adani’s downfall will dent the national development model that Mr. Modi has relied on for his reputation as a builder of the things India needs.” 

 (*Story updated February 10, 2023.)

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