US investor says that Adani’s Queensland coalmine was the “largest fraud in corporate history.”
After harsh accusations in a study by an active US short-seller, Adani Group’s capacity to borrow money will be restricted, analysts predict, albeit rising coal prices that support the Indian conglomerate’s contentious Queensland operations may help ease some of the strain.
The Carmichael coal and rail project is run by Adani through its rebranded subsidiary Bravus. US investment firm Hindenburg Research accuses Adani of engaging in a “brazen stock manipulation and accounting fraud scheme.”
Following the publication of the study on Wednesday, shares in publicly traded firms affiliated with Gautam Adani, the third-richest man in the world, were instantly sold down, losing US$9.4 billion (A$13.2 billion) in value.
Hindenburg cited transactions associated with the Australian operations as evidence that it believes Adani may have been able to avoid informing investors of significant asset impairments.
According to the study, the impairments were kept in a private business connected to Adani interests, despite the fact that they might have had an impact on the net income of its listed flagship, Adani Enterprises.
The purported transactions consist of:
- Unspecified “work in progress” assets from the Australian operations were purchased for A$147 million by a private firm with ties to Adani called Carmichael Rail and Port Singapore Holdings, which did not provide a full description.
- For the privilege of using the rail facilities at the Queensland operation, the same private business paid A$155m.
- Additionally, a private Carmichael firm received $100 million from an Adani affiliate to settle debt.
- The private corporation is accused of subsequently writing down the value of such assets.
- Separately, the Hindenburg report describes a purported related-party transaction worth over $100 million dollars, in which an Adani subsidiary is believed to have required a security deposit from one of the listed companies in order to access the Adani-run Abbot Point port facilities.
Just 48 hours before Adani Group is scheduled to conduct a significant stock market fundraising drive, Hindenburg disclosed the results of its two-year study on Twitter early on Wednesday.
Adani’s response
The report, according to group Said, was a “malicious blend of selected falsehoods and stale, unsubstantiated, and discredited charges,” he said in a statement.
Adani said that the timing of the article was intended to harm the company’s reputation and a significant fundraising effort.
The Adani Group statement was recommended to the Guardian by an Australian company official.
Some analysis
According to the research, “Even if you disregard the results of our analysis and accept the Adani Group’s financials at face value, its 7 core listed firms have 85% downside merely on a fundamental basis due to sky-high valuations.”
According to Tim Buckley, managing director of Climate Energy Finance, financial restructuring at Adani in the years before the epidemic had rendered the company less vulnerable to a shock, but the study might discourage some investors from supporting the conglomerate.
Buckley, who has opposed the Carmichael project, stated definitely that it will hinder their ability to access Wall Street.
Expert’s view
Adani is not a house of cards, in my opinion, until the Hindenburg research results in a serious, credible, comprehensive reaction from the SEC, the US securities regulator stated.
On Thursday, a public holiday, the Australian Securities and Investments Commission did not react to inquiries right away. The department of resources for the Queensland government was likewise slow to respond.
Adani might be forced to sell assets if there is persistent pressure from regulators or investors, as there has been in the past with prior short-selling campaigns. However, the most marginal coal projects are now profitable, easing some of the financial burdens. This is due to rising coal prices supported by Chinese demand and protracted disruptions to Russian supplies.
At the current pricing, even Carmichael is profitable, according to Buckley.
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