Following the publication of a research by the Hindenburg Institute, one of the wealthiest people in India saw a decline in net worth. Shares of Adani Enterprises and other Adani group companies have plummeted after the investor research company Hindenburg Research, located in New York, accused the conglomerate of stock manipulation and an extensive accounting fraud scheme.
How does Hindenburg work?
A centre specialising in “forensic financial research” is called Hindenburg. In other words, it searches for instances of business-related corruption or fraud, including questionable management practises and accounting problems. A US-based investment research company called Hindenburg focuses on activist short-selling.
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The sale of a security or share that the seller does not possess is what the Securities and Exchange Board of India (Sebi) describes as short selling. Short selling is the practise of selling borrowed shares in the market with the intention of later purchasing them at a lower cost. In other words, short selling is the exact opposite of conventional stock market investing, in which an investor purchases a stock with the anticipation that its price will increase in the future.
An investor engages in short selling when they believe that the value of a stock will decline. An investor can sell shares of a specific firm without owning them when engaging in short selling. They can instead borrow the company’s shares or assets from any broker or dealer. Nate Anderson, a chartered financial analyst and a chartered alternative investment analyst, started Hindenburg Research in 2017.
What accusation does Hidenberg make against the Adani organisation?
The Adani Group is allegedly “involved in a stock manipulation and accounting scam,” according to Hindenburg Research. The Adani Group has stakes in a number of industries, including ports and logistics, power generation, agriculture, real estate, the military, solar energy, financial services, natural resources, and media.
The research company asserts that over several decades, the Adani group participated in blatant stock manipulation and accounting fraud schemes totaling 17.8 trillion (US$ 218 billion).
According to The Hindenburg’s report, the Adani family controlled offshore shell companies in tax havens all over the world, from the Caribbean and Mauritius to the United Arab Emirates. These companies, according to the report, were used to facilitate tax fraud, money laundering, and corruption while syphoning off cash from the group’s publicly traded companies.
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The Adani Group has borrowed heavily from Indian banks. So, the question of whether or not the business tycoon would be able to repay the debt on time looms large. Large-scale share-based lending by banks carries risk because share prices frequently fall when companies are unable to pay their debts.
Moreover, LIC has made a financial commitment to the Adani Group. Due to the article, the investment dropped significantly, and the investors are concerned about losing money. This can cause the bank’s non-performing assets to increase in the future, which would hurt the bank’s ability to provide loans.
