Vinod Shantilal Adani in a group photo with his brother, Gautam Adani

The market losses of Adani Group exceeded US$100 billion on Thursday (2 Feb) with share prices of all its publicly listed companies crashing down.

Losses across Gautam Adani’s companies hit US$107 billion by 10 a.m. London time on Thursday since the Jan 24 publication of a critical report from New York’s Hindenburg Research alleging security fraud by Adani Group.

After a two-year investigation, the report charged the Adani’s conglomerate with engaging in a “brazen stock manipulation and accounting fraud scheme over the course of decades.”

The swift share decline of Adani Group companies has sparked concerns over broader systemic risk to Indian markets. India’s central bank has asked its local banks for the details of their exposure to the Adani conglomerate. It’s not known if DBS India has lent any money to Adani Group of companies.

Accounting fraud

According to Hindenburg’s report, it alleged that Gautam Adani’s elder brother, Vinod Adani, has been managing a network of offshore entities used to facilitate fraud linked to the Adani Group.

“Our research, which included downloading and cataloguing the entire Mauritius corporate registry, has uncovered that Vinod Adani, through several close associates, manages a vast labyrinth of offshore shell entities,” Hindenburg said.

“We have identified 38 Mauritius shell entities controlled by Vinod Adani or close associates. We have identified entities that are also surreptitiously controlled by Vinod Adani in Cyprus, the UAE, Singapore, and several Caribbean Islands.”

“Many of the Vinod Adani-associated entities have no obvious signs of operations, including no reported employees, no independent addresses or phone numbers and no meaningful online presence. Despite this, they have collectively moved billions of dollars into Indian Adani publicly listed and private entities, often without required disclosure of the related party nature of the deals.”

“Many of these entities later appear in suspect transactions, often funneling assets into or out of the Adani Group companies. We have also identified an instance where a private entity seems to have been used to help listed Adani Enterprises avoid reporting losses, bolstering the appearance of its reported earnings.”

That is to say, Hindenburg alleged that these Vinod Adani-associated shell companies were created to do:

  1. Stock parking / stock manipulation
  2. Money laundering through Adani’s private companies onto the listed companies’ balance sheets in order to maintain the appearance of financial health and solvency of the Adani Group.

Carmichael Rail and Port Singapore Holdings Pte Ltd

In its report, Hindenburg highlighted a particular Singapore company named “Carmichael Rail and Port Singapore Holdings Pte Ltd”. It alleged that this company run by Vinod Adani and associates shuffled material losses off the books of listed Adani Enterprises, allowing Adani Enterprises to report a higher net income in its financial reportings.

It said that sometime in between 2013 and 2015, Carmichael Rail engaged in a series of 3 transactions that may have resulted in Adani Enterprises avoiding recognition of large asset impairment charges, which would have negatively impacted listed Adani Enterprises’ net income and stock price.

The three transactions involved a related coal mine, railway, and port in Australia. None of the transactions was specifically disclosed in the Adani Enterprises annual reports. Following these deals, Carmichael Rail reported consistent losses from 2015-2018, driven by asset impairments from the assets acquired from Adani Enterprises’ subsidiaries and interest payments on loans to Adani Enterprises.

In 2015, for example, Carmichael Rail wrote down the value of its newly acquired assets by AUD $23 million almost immediately.

Had the publicly listed Adani Enterprises been required to accept just that single write-down, it would have resulted in an INR ~1.2 billion impairment, which would have directly impacted its reported consolidated profit after minority interests of INR ~19 billion for that year.

“We calculate Carmichael Rail’s losses for that period totaled AUD $50.5 million, representing an estimated ~5% of Adani Enterprises’ reported profits during the period,” Hindenburg said.

“In short, Carmichael Rail: (1) acquired assets from publicly listed Adani Enterprises (without disclosure by the listed entity) (2) with loans funded by Adani Enterprises (without disclosure by the listed entity), then (3) almost immediately wrote down the value of the assets in the same year, enabling Adani Enterprises to potentially avoid a significant loss.”

Essentially, Hindenburg is alleging that Adani Group is using offshore shell companies like Singapore’s Carmichael Rail to engineer its accounting in order to make their listed entities appear more creditworthy, or simply move funds back out to other parts of the Adani empire where capital is needed. “This offshore shell network also seems to be used for earnings manipulation,” alleged Hindenburg.

An ACRA check shows that Carmichael Rail and Port Singapore Holdings Pte Ltd — a live company which deals with software consultancy — was incorporated in 2014 with a share capital of S$1000.

It is owned by a Cayman Islands company, Atulya Resources Ltd.

There are two directors in the company, and one of them is indeed, Vinod Adani.  Vinod Adani’s citizenship is listed as Cypriot, but the registered ID is a local registration number suggesting that he might be a Permanent Resident.

The other director is an Indian national, Desai Ramanlal in Singapore on a work pass:

Adani Group: Vinod Adani not related to us

With regard to the accusation from Hindenburg, Adani Group issued a 413-page response on 29 Jan 2023.

In its response, it said, “Vinod Adani does not hold any managerial position in any Adani listed entities or their subsidiaries and has no role in their day to day affairs. As such, these questions have no relevance to the entities in the Adani portfolio and we are not in a position to comment on your allegations on the business dealings and transactions of Mr. Vinod Adani.”

Then, Hindenburg issued a counter-response to Adani’s response on the same day (US East Coast Time), saying that they have already presented evidence of Adani’s alleged stock manipulation and accounting fraud.

“Many of our questions were focused on both the nature of these transactions and the lack of disclosure around the clear conflicts of interest involved. In its response, Adani did not seem to dispute the existence of these transactions and made no effort to explain their obvious irregularities,” Hindenburg noted.

“Instead, Adani bizarrely argued that Vinod Adani is not a related party to the Adani Group, and that there are no disclosable conflicts relating to the transactions that have collectively moved billions of U.S. dollars through Adani Group entities, largely through offshore shell entities.”

Hindenburg had also asked about the source of the billions of USD that have flowed from Vinod Adani-associated shell companies through Adani group. It explained, “Many of our questions focused on the source of funds for suspect transactions between Adani Group entities and Vinod Adani-associated entities. This information is critical to the integrity of Adani’s business, as it indicates whether the company is round-tripping turnover, laundering illicit funds, or using cash to manipulate its stock.”

“We found Adani’s lack of direct and transparent answers to these questions telling… Adani’s response claimed ignorance, stating ‘We are neither aware nor required to be aware of their source of funds’,” Hindenburg said. “It also added that it is ‘not in a position to comment on…allegations on the business dealings and transactions of Mr. Vinod Adani’.”

Ridiculing the Chairman of Adani Group, Hindenburg added, “In other words, we are expected to believe that Gautam Adani has no idea why his brother Vinod lent massive sums of money to Adani entities, and no idea where the money originated from.”

“If any of that were true, Gautam could easily clear up the mystery by calling his brother, or asking him at the next family dinner, why he has been directing billions of dollars to Adani-controlled entities through a network of opaque offshore shell entities. He could also call the head of his own Family Investment Office and ask the same.”

“Once again, these explanations simply defy common sense,” concluded Hindenburg. “In short, these transactions bear all the same potential risks and issues of any other related party transaction: non-arm’s-length transactions, corruption, conflicts of interest, stock manipulation and fraud – yet Adani claims investors are not entitled to know.”

Now that Hindenburg Research has published its damning report about Adani Group especially accusing it of using offshore entities based in Singapore to perpetuate accounting and security frauds, moving illicit money back and forth between Singapore and India, what would Singapore’s Monetary Authority of Singapore (MAS) and Commercial Affairs Department (CAD) do?

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