New Delhi
CNN
 — 

India’s richest man Gautam Adani ended his trip to Davos earlier this month on an optimistic note. The infrastructure billionaire expressed confidence about India’s growth and ambition. He even talked about his mild addiction to ChatGPT.

Back home, his huge logistics and energy conglomerate announced plans to take more businesses to the stock market and issue new shares to raise billions to pay down debt. Less than a week later, everything changed.

Hindenburg Research, a small American firm, published a scathing report last Tuesday on the Adani Group, which at that point had a market value of over $200 billion. In its investigation, Hindenburg accused the group of “brazen stock manipulation and accounting fraud scheme over the course of decades.”

Adani immediately denounced the report as “baseless” and “malicious,” but the market reaction was swift and brutal. By Monday, his business empire had lost $70 billion of its stock market value. The rout was a screeching U-turn for Adani — some of his companies had seen their share prices surge by more than 1,000% on the Indian stock market over the last few years.

“In the short term, markets are driven by sentiment and post this report, sentiments are playing against Adani group,” said Swapnil Shah, director of research at brokerage Stoxbox.

So, how did a relatively young and small New York financial research firm manage to bring the Adani juggernaut to a juddering halt? What happens next in this David versus Goliath battle?

Adani, a 60-year-old college dropout, has been compared to business magnates such as John D. Rockefeller and Cornelius Vanderbilt, who built vast monopoly businesses in the 1800s.

Much of his fortune is tied up in the sprawling Adani Group, which he founded over 30 years ago. While the last week has seen nearly $40 billion wiped from his personal net worth, he is clinging on as Asia’s richest man with $82 billion—$2 billion more than fellow Indian entrepreneur Mukesh Ambani, according to the Bloomberg Billionaires Index.

At his peak last year, he had ousted Jeff Bezos as the world’s second-richest person, making it the first time a person from Asia had ranked so highly on the Bloomberg list, long dominated by white tech entrepreneurs. But over the past week, Adani has fallen from the fourth place to 11th.

Experts say the speed with which he has accumulated wealth is both extraordinary and unusual, even in India, where the super-rich have exploded in number.

A first-generation entrepreneur, Adani began his career with diamond trading, before setting up a commodity trading business in 1988, which later evolved into Adani Enterprises Limited (AEL).

Soon after, India launched groundbreaking reforms, which turbocharged its economic growth. Adani grew his fortune alongside it. In 1994, AEL became the first of his companies to list on the stock exchange in Mumbai.

A year later, Adani started operating the Mundra Port in Gujarat, a state in western where the businessman and Narendra Modi, the prime minister of India, both hail from. Often called the group’s “crown jewel,” Mundra Port is the country’s biggest commercial port by volume.

AEL functions as an incubator for Adani’s businesses. Once they have matured, they are spun off, often via stock market listings. Many of Adani’s companies have become leading players in their respective sectors.

He is one of the largest coal producers in India, and also operates the controversial Carmichael Coal Mine in Australia, which has faced fierce opposition from climate change campaigners.

While Adani’s empire is built on fossil fuels, the businessman is investing billions of dollars in clean energy, an ambition that aligns with India’s long term climate goals.

In recent years, he has also expanded into sectors ranging from media and data centers to cements and airports.

Adani is seen as a close ally of Modi, and investors have been betting on his ability to grow his businesses in sectors that the prime minister has prioritized for development.

But critics say his rise has rested heavily on crony capitalism. They question whether his empire could survive unscathed if there is a change of government.

Adani Group — which employs over 23,000 people — is now grappling with its worst crisis in recent times because of the Hindenburg report.

Named after the 1937 airship disaster, the firm takes bold bets against high-flying corporations that it believes are overvalued, fraudulent or both.

It was founded in 2017 by Nathan Anderson and won its reputation as a bloodhound for financial malfeasance in 2020, when it accused electric vehicle maker Nikola of lying to investors about its truck’s capabilities. Nikola’s founder was eventually convicted of fraud.

In its Adani investigation, Hindenburg said it had taken short positions in the group’s firms “through US-traded bonds and non-Indian-traded derivative instruments.” Short sellers aim to make money by betting that the stock price of the companies they target will fall.

The research firm questioned the “sky-high valuations” of Adani firms and said their “substantial debt” puts the entire group “on a precarious financial footing. It concluded its report with 88 questions. These range from asking for details on Adani’s offshore entities, to why it has “such a convoluted, interlinked corporate structure.”

Since the report’s release, there has been furious back-and-forth between the Adani Group and Hindenburg, with the Indian conglomerate saying Thursday it was considering legal action. It followed that on Sunday with a long and angry rebuttal running to more than 400 pages, in which it called Hindenburg’s allegations “baseless and discredited” and said the research firm had an “ulterior motive.”

It also portrayed the US short seller’s report as an “attack” on India, its economy and investors.

Hindenburg responded to Adani’s rebuttal by saying “fraud cannot be obfuscated by nationalism.”

“Adani Group has attempted to conflate its meteoric rise and the wealth of its Chairman, Gautam Adani, with the success of India itself,” it said in a post on Twitter on Sunday.

India’s stock market regulator hasn’t yet made any statements on the allegations, but Life Insurance Corporation (LIC), the country’s largest insurer with over $4 billion invested in the Adani Group, told Reuters that it will hold talks with the group

“Presently there is a situation that’s emerging and we are not sure what is the factual position … Since we are a large investor, we have the right to ask relevant questions and we will definitely engage with them,” LIC Managing Director Raj Kumar was quoted as saying.

Hindenburg’s claims came at a sensitive time for Adani, as he sought to raise 200 billion rupees ($2.5 billion) by issuing new shares in Adani Enterprises. The offer was touted as India’s biggest ever public share offering by a listed company.

After a tepid start, the offer was fully subscribed shortly before the deadline set for the close of trading in Mumbai on Tuesday. Its success offers Adani some respite after the relentless stock market battering of recent days.

This is not the first time analysts have expressed fear that the rapid expansion of Adani businesses comes with huge risk. Adani’s empire has been fueled by a $30 billion borrowing binge, making his business one of the most indebted in the country.

CreditSights, a research firm owned by the Fitch Group, published a report last year about Adani Group titled “Deeply Overleveraged” in which it expressed strong concerns about its debt-funded growth plans.

In its response, Adani Group said that the “leverage ratios” of its companies “continue to be healthy and are in line with the industry benchmarks in the respective sectors. “

In the long run, however, analysts believe that while Adani shares will see a much-needed correction in value, the group will survive this crisis.

Adani Group “is not going anywhere,” said Rajat Sharma, founder of financial advisory firm Sana Securities. “They are a well-established group in systemically important businesses.”