Alleged violations under investigation include short selling, unfair trade practices and insider trading.
The Securities and Exchange Board of India (SEBI) has confirmed to India’s Supreme Court that is it investigating allegations made against Adani Group in a report issued by short-seller Hindenburg Research last month.
In the report Hindenburg alleged fraud and stock price manipulation by Adani Group, an Indian multinational conglomerate and the world’s largest private fossil fuels developer which has numerous interests in coal mining. The report claimed this had taken place “over the course of decades”, which prompted a US$120 billion collapse in the share prices of its group companies.
Adani Group has denied the allegations.
It was previously reported that SEBI was looking into the Hindenburg allegations, but this is the regulator’s first official confirmation that a probe is underway.
SEBI also said it has launched enquiries into the market activity immediately preceding and following the publication of the Hindenburg report, attempting to identify regulatory violations.
Potential violations being investigated by SEBI include short selling, unfair trade practices, insider trading, foreign portfolio investor regulations, and norms for offshore derivatives instruments.
“SEBI is strongly and adequately empowered to put in place regulatory frameworks for effecting stable operations and development of the securities markets,” the regulator said.
The government is meanwhile seeking to establish a committee of experts, appointed by the Supreme Court, to suggest possible improvements to the regulatory regime to protect Indian investors from losses from market volatility.
A proposal regarding the remit of the committee and its members is due to be presented to the Supreme Court on 17 February. This remit is considered important to avoid undermining the authority and competence of regulators who are already looking into the matter.
Exposures beyond India
Separately, Singapore’s DBS has reported having exposures to Adani Group worth S$1.3 billion (US$980 million). DBS CEO Piyush Gupta said the bank is “not concerned” about the exposures due to the bulk of those exposed being “solid, cash-generating” cement companies that are debt-free.
Gupta was referring to exposure from a S$1 billion loan for Adani’s US$10.5 billion acquisition of Swiss construction materials company Holcim’s cement business in India, completed in September 2022. DBS was among several backers of the deal.
The remaining S$300 million of DBS’ exposure is from financing to a range of Adani Group companies, which Gupta said are “working well” and have “secure” cash flows. DBS has no exposure to the shares of Adani Group or its promoters, so it is “not affected” by changes in their share prices, he added.
Meanwhile, banks including Citigroup, Credit Suisse and Standard Chartered have reportedly stopped accepting bonds and other securities of Adani Group as collateral for margin loans; and MSCI has said it was reviewing the size of the free float in Adani stocks in its India index, and cut some of their weightings.
According to the Financial Times, Adani Group founder Gautam Adani has promised to improve oversight of the private family companies that control his business empire, including through the appointment of a financial controller to oversee his various trusts and other privately held companies.
“The governance structure of the family office will become more like a public company, post this episode,” said one FT source. “This is what Mr Adani has decided.”
The Hindenburg report had raised concerns about dealings by Adani’s relatives through family trusts and related entities, including suggestions that some Mauritius-based funds that own shares in Adani companies are secretly controlled by the family.
Adani Group told Reuters on Monday that its business plans were fully-funded, its cashflows strong, and that it remained confident it would be able to deliver attractive returns to shareholders.