New Delhi: The Adani Group on Monday, April 10, dismissed a Financial Times‘ report which said, citing Reserve Bank of India data, that “almost half of all foreign direct investment (FDI) into Gautam Adani’s conglomerate between 2017 and 2022 came from offshore entities linked to his family.”
The story published on March 22 said that “most offshore shell companies supplying FDI to the conglomerate have been disclosed as part of Adani’s ‘promoter group’, meaning they are closely tied to Adani or his immediate family.”
“Almost half of the Adani Group’s $5.7 billion (approximately Rs 46,818 crore) FDI inflows came from opaque overseas entities with connections to the group,” FT reported.
The newspaper quoted Jonas Heese, associate professor at Harvard Business School’s accounting and management unit, as saying, “Why do you make it so complex that it’s very difficult for outsiders to understand? I think that is a legitimate question to ask.”
The analysts cited in the report raised concerns over “money moving from obscure Mauritius entities” into the group because “it was impossible to ascertain whether or not the funds had been ’round-tripped’,” an arrangement considered illegal in India.
In response to the report, Adani Group said: “We understand the competitive race to tear down Adani can be alluring. But we are fully compliant with securities laws and are not obscuring promoter ownership and financing.”
“Through the creation of a misleading narrative, your story has created reputational impact on Adani Group companies. We ask you to take down the story immediately from your website,” the company said in a statement.
Foreign direct investment, or FDI, means when a company takes controlling ownership in a business entity in another country.
With FDI, foreign companies are directly involved with day-to-day operations in the other country. This means they aren’t just bringing money with them, but also knowledge, skills and technology.
The Financial Times reported that “a quarter of the more than $2.6 billion in FDI that flowed into Adani companies” came from “connected offshore companies”.
Experts told the London-based financial daily that the opacity surrounding the Adani Group’s offshore entities is unusual for a company that relies on institutional capital for growth because established investors prefer to back companies they understand.
Note that the buying and selling of large positions by institutional investors can create supply and demand imbalances that result in sudden price moves in stocks, bonds, or other assets.
How a number of FPIs (foreign portfolio investors) who have invested in Adani group companies have no information available and raises concerns over the conglomerate’s free float status is a different story.
The Securities and Exchange Board of India is investigating related party transactions by both listed and privately held Adani Group firms, offshore companies, FPI holdings, and minimum stock market floats. However, it had in July 2021 also wrote to the custodians of the FPIs who own shares in Adani group firms to disclose their ‘ultimate beneficiary’.
After US short seller Hindenburg Research on January 24 released its report accusing the conglomerate of stock manipulation and accounting fraud, which led to a Adani stock rout, the firms’ ‘opaque’ offshore dealings came into limelight.
The group has denied all the allegations.
Links to Vinod Adani
“The biggest investments came from two companies directly or indirectly linked to Adani’s elder brother Vinod, who is listed in stock exchange filings as a Cypriot national and lives in Dubai,” FT reported.
“Emerging Market Investment DMCC, which states on its website that it only invests Vinod Adani’s funds, ploughed $631 million into Adani companies between 2017 and 2018. Meanwhile, Mauritius-registered Gardenia Trade and Investment, which invested $782 million into Adani companies between 2021 and 2022, is directed by Emerging Market’s manager Subir Mittra,” it said.
Subir Mittra is the chief executive of the Adani family office.
Any investment made by NRIs is considered a foreign investment in India. And they are, therefore, governed by laws related to FDI in India.
FT questioned the opacity surrounding the Adani Group’s offshore entities.
“FDI data shows the shell companies made 165 separate FDI transactions that year worth an average of less than $4 million, with the majority flowing to Adani Ports,” the report said.
“Money flows into Adani companies have at times made up a large proportion of Mauritian FDI into India. In the first quarter of 2021, for instance, they accounted for 23% of the Mauritius-to-India total,” it added.
In response to the FT report, the company said, “The Adani Group’s promoters raised $2 billion through the sale of a 20% stake in Adani Green Energy Ltd (AGEL) to TotalEnergies of France (then Total Renewables SAS)…”
“Further, in October 2019, the promoters had raised ~$700 million through the sale of a 37.4% stake in Adani Total Gas Ltd,” the statement added.
“These funds were reinvested by promoter entities to support the growth of new business and in portfolio companies such as Adani Enterprises Ltd, Adani Ports and Special Economic Zone Ltd, Adani Transmission Ltd and Adani Power Ltd. The promoter entities have had substantial holdings in Adani companies, which have increased over time. It is through the timely use of funds received through the sale of equity that these entities have been able to increase their investments,” it added.
After Hindenburg Research’s report, Gautam Adani, who held the title of Asia’s richest person and the world’s third richest until recently, saw his personal net worth fall. He is no longer among the world’s 25 richest on Forbes, Bloomberg lists.
Adani had also called off the Rs 20,000 crore follow-on public offer which a Forbes report had claimed was bought into by the group.
The Adani-Hindenburg issue also rocked the parliament with the opposition demanding a joint parliamentary committee probe into the allegations by the US-based short seller on Adani Group.
Separately, Congress leader Rahul Gandhi has asked how “Rs 20,000 crore arrived in Adani’s shell companies”.