At the outset of 2023, Gautam Adani, the Chairman and CEO of Adani Group, was at the pinnacle of his wealth. He was listed among the top 10 wealthiest individuals in the world on the Forbes List in late 2022, he was crowned Asia’s richest, surpassing telecommunications tycoon and fellow countryman, Mukesh Ambani. Indeed, by that time, Gautam Adani had about a $133 billion net worth, and his entire wealth was tied up to his eight companies that are all listed on the Indian stock exchange. In short, everything was going great for Mr. Adani as he was larger than life.
In late January 2023, however, short-selling investment research firm, Hindenburg Research launched a short-selling bid against Gautam Adani and his empire, Adani Group. Hindenburg Research released a devastating report accusing the Adani Group and its CEO of engaging in large-scale stock price manipulation, falsely over-inflating the value of their assets, and controlling over 75% of their shares through different offshore shell entities controlled by the Group. The legal limit of stock ownership for a publicly-traded company listed on the Indian stock exchange is 75%. This means that had this legal limit not been imposed, the Adani family would have controlled 100% of the company’s stock. The Adani Group attempted to deny the allegations by releasing a 400-page memorandum. But it was already too late. The damage has been done.
Stock Price of Adani Group
Source: Google Finance
The release of this report completely plummeted Gautam Adani’s personal wealth as well as the market capitalization of the Adani Group. Indeed, the value of Gautam Adani’s business empire has crashed by more than $50 billion. Up to today, the Adani Group has not truly recovered from the short-selling bid. This shows how powerful short-selling could be as an advanced investment strategy.
Short-selling, especially in the equity market, is all about discrediting the company’s management. One of the reasons why investors decide to invest in a particular company is because they have confidence in the company’s management to do what’s right, and ethical to increase shareholder value. When that confidence is shattered due to negative press, it is like toothpaste out of the tube. When the toothpaste is out of the tube, it is very hard to bring it back in. When investors lose confidence in a company’s management, it is very hard for the company to gain its reputation back. And this is what the Adani Group is currently experiencing long after the short-selling bid has long been over.
According to a Forbes article, Gautam Adani planned to raise capital once again. Indeed, two companies of the Adani Group, Adani Enterprises Ltd and Adani Transmission Ltd, last month announced their decision to raise capital via qualified institutional placement (QIPs) with Adani Enterprises aiming INR 12,5000 crore and Adani Transmission INR 8,500 crore. They may do so by issuing shares or bonds, the companies are yet to reveal. According to the article, the new fund raise would be the Adani Group’s first attempt to raise money after the fiasco from the last-canceled follow-on offer (FPO) post-Hindenburg Report.
While the Adani Group is still able to raise capital from domestic and other Asian investors, this call for capital may be very hard to do for Western investors who remain skeptical about the Adani Group’s credibility. The Adani Group still needs Western investors since the U.S. and the U.K. equity markets have the highest market value in the world.