Home / Opinion / Views /  Adani’s rebuttal did not quite glare critics down

In a rear-guard move against US-based trader Hindenburg’s characterization of its business operations as a “corporate con" marked by “brazen stock manipulation and accounting fraud," the Adani Group on Sunday not only issued a lengthy rebuttal, but also invoked Jallianwala Bagh, the 1919 massacre of Indians by fellow citizens under British command. As an analogy for those inclined to buy a raft of charges rejected by Adani as a mala fide attempt to torpedo an ongoing share issue by Adani Enterprises Ltd (AEL), that bit was far too over-the-top to earn it any credit and is best treated as yet another flag-wave to secure brand appeal among investors who’d rather play nationalist than rationalist. The latter, after all, are aware that a market churn in stock ownership driven by diverse investor conclusions is vital for its price to reflect its value, just as short-sellers play a critical corrective role. After last week’s rout, AEL shares found some support to recoup some losses on Monday, although the stock still failed to reach the lower end of its follow-on offer’s price band by day-end. The firm’s public issue was thus still at risk of failure, with a cut-price relaunch a fallback option, unless institutional buyers (of big lots) find a motive to mount a last-day rescue. Either way, its fate should go by reason, not rhetoric.

To that end, what’s of relevance is the defence put up by Gautam Adani’s group of businesses. In a nutshell, it has: (1) sought to explain AEL’s sky-high price-earnings ratio as reflective of future value currently in incubation; (2) denied any strings held in secrecy as a share-price puppet; (3) claimed that the fraction of pledged promoter equity in major firms had dropped by 2021-22 to under a fifth; and (4) stated that it has enough cash flows to cover its annual payments of interest more than thrice over. “Against a portfolio [earnings before interest, tax, depreciation and amortization] of $8 billion, our net debt is approximately $26 billion," said the group’s chief financial officer Jugeshinder Singh, “Even if you put a 10% cost of funds, our annual interest payment will be $2.6 billion against a cash flow of $8 billion." As for specific allegations levelled on 24 January by Hindenburg to back its short position on Adani bonds, the group contended that the flags of propriety raised had been settled by Indian authorities and duly disclosed, while other queries were either for others to answer or baseless. Taken at face value, all this posits the group as unlikely to crumble under its debt anytime soon.

Yet, this may be cold comfort for investors who reject the relativist view that our concern mustn’t go beyond Adani’s solvency and ability to expand without regulatory run-ins. While its rebuttal does go point by point, as it should, a zoom-out picture offered by these points doesn’t inspire much confidence in the group’s corporate governance. The document fobs off as irrelevant questions of any role played by a sibling of the promoter, for example, but its claim of adherence to all related-party norms is weakened by how all the associated dots appear to add up. Selective these queries might be, and Adani’s no-comment responses may well be valid under the law, but so is investor curiosity in such ties, given suspicions of money shuttled across the seas by hidden family-linked networks. All in all, Adani’s defence wanes whenever it dodges a query and waxes where it tries to explain, like its professed use of complex structures to parcel out and mitigate risks in infrastructure. As visible in market trends, though, its efforts so far have fallen short.

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