The year 1992, Finance Minister Manmohan Singh liberalised economy, stocks zoomed, small salaried class crowded the equity market for windfall profits, and they were doomed. That was ascribed to the Big Bull Harshad Mehta scam. Two decades later Hindenburg exposes another, Adani sullying the financial market reputation and leading the collapse. Nothing apparently has changed.
There are stark similarities. Both started with the Union Budget, uproar in both Houses, pandemonium, logjam for a JPC demand by the Opposition, then virtually led by the BJP, that set up the regulator SEBI and brought some semblance in stock market. Twenty-one years later there is a comic role reversal. The ruling party now, like the Congress then, is defending and repeating, “Let the House function”. It reminds the famous quote of former Prime Minister AB Vajpayee, “Satta ka chaal, chalan, charitra ek hi hota hai”. (The behavior and character of those in power is same).
Between January 24, expose of 106-page Hindenburg and February 1, when Adani’s Rs 20000 crore scrip was called off, the company lost Rs 8.79 lakh crore pauperizing millions of depositors of SBI, LIC and other lead institutions.
Globally there could be more problem as Citigroup, Credit Suisse and Dow Jones decide not to accept Adani scrip as collateral. In the UK, brother of a former PM quits a bank for exposure to Adani short selling. The US starts probing over two dozen companies. It gives India rating a jolt though Hindenburg says India is an emerging superpower.
Had Adani not called the actual Re1per share FPO off, it could have been grave. Premium value was Rs 3112-3276. The market premium price on February 2 slumped to Rs 1565. The BSE and SEBI must answer how such pricing is allowed. In Forbes list, Adani slips to 15th position as his wealth dropped to $72 billion from $81 billion, $ 11.9 slip.
The issue of “largest con in corporate history”, described by Hindenburg research firm, was swept under the carpet in political, social and media circles, is raging storm in teacups. That’s communication. Suppress and it erupts. Adani, says Hindenburg, holds back “India’s future being draped itself in Indian flag”. It is an affair with 38 shell companies in the Caribbean and Mauritian tax havens and manipulation or short selling of share prices. It has given disheveled Opposition a hope and like never before the defenders are from an unthinkable exalted stream.
Most maligned Pandit Jawahar Lal Nehru for all his faults did not succumb to the then Bombay Club to have Bombay as the national capital. He wanted that political and economic centres must be distant.
Gautam Adani started rising during the UPA and the change of regime gave him a sudden boost to his ambition to become the third richest in the world. He develops ties. In times of need he got the best support from his rivals to invest in the FPO.
The accuser, Hindenburg Research, short-selling firm of Nathan Anderson rattled it. It has a record in cracking 30 corporate frauds, of Nikola, China Metal included, says Bloomberg, since 2017. Each company was devastated. Hindenburg found that five of the seven Adani companies have a current ratio of less than one. It means these lack cash and liquid assets to cover debts. Adani replies each of the 88 questions, but Hindenburg says no answer has been given. To the challenge of a court case, the accuser says, “Bring it on”.
To the chant of a swadeshi company being maligned and targeting India, Hindenburg retorts ‘frauds cannot be obfuscated by nationalism’. Adani built up an empire of seven companies Adani Green, Enterprise, Transmission, Total Gas, Power, Ports and Wilmer (with Singapore links). His sharp rise was during the past six years or so beginning with acquisition of GMR from Mumbai’s Sahar airport. Murmurs were for the Mundhra Port too.
Virtually if open discussion and JPC is allowed, the BJP gains political esteem. Reticence is giving ‘Bharat Jodo Yatra’-empowered Congress an edge and Leader of Opposition in Rajya Sabha Mallikarjun Kharge an opportunity to meet 16 Opposition parties – Congress, DMK, SP, AAP, BRS, Shiv Sena, RJD, JDU, CPIM, CPI, NCP, NC, IUML, Kerala Congress (Jose Mani), KC (Thomas), and the RSP. Anti-Congressism strengthened with the 1992 JPC. The Opposition was saying in 1992 what now Congress leader Jairam Ramesh says, “Only an independent investigation will save LIC, SBI and other institutions”.
Twenty-two major mutual funds like SBI, ICICI, Kotak, Nippon, Baroda BNP invested Rs 23822.44 crore. The SBI gives Rs 27,000 crore, LIC Rs 30127 crore, Bank of Baroda Rs 7000 crore, PNB Rs 7000 crore. Canara Bank and Union Bank also have invested. There is heavy collateral damage to mutual funds as the stock market collapses. Hong Kong based investment firm CLSA estimates that bank debt to Adanis was Rs 70000-80000 crore of the Rs 2 lakh crore total debts.
Hindenburg says it held short positions and accuses Adani of improper use of offshore tax haven that erodes $11 billion in investor wealth. Each bank has lost a sum that RBI is now collating. Whether the banks need recapitalization would be known after RBI reassesses replies sought from the banks. But mutual funds must have suffered. How these affect National Pension Fund is not known.
Gautam Adani says it would review its capital market strategy. Indian credit rating agencies have asked whether they would refinance the group or not.
Hindenburg says listed companies had “substantial debt” which has put the group on a “precarious financial footing” and the shares of Adani listed companies have an 85 per cent downside due to what it called “sky-high valuations”. It also alleged shell companies invested in the company and names Adani’s brothers and relatives as players. Adani denies it saying raising finances through collaterals is common. Hindenburg says of 88 questions they posed, 65 were related to matters that have been disclosed in annual reports and went unanswered.
Will the group collapse? It may not for its clout and relationships. Much would depend on how the Opposition behaves or gets managed. Sharper barbs can lead to a slugfest. Likely parleys behind the scenes can change the contours. Much depends on the revved-up Congress. Even if it subsides, continuing tamasha in a poll-bound year can be a reality. The passage of the Budget is crucial and that can change a lot. Aggravating international contours can hit investments in India. — INFA