The richest man in Asia finds himself in the crosshairs of a small American investment fund established not even ten years ago.

The market value of the construction and infrastructure empire of Indian multi-billionaire Gautam Adani lost more than 70 billion dollars on Monday, January 30.

Blame it on Hindenburg Research, a young hedge fund that published a long report of more than 200 pages on Wednesday January 25, detailing what these investors call “the biggest scam in the history of the business world”.

“Revelations” that prompted them to bet on the stock market fall of companies belonging to Gautam Adani.

Tax havens and repeated fraud

Since the publication of this document retracing “two years of investigation and multiple interviews”, the “success story” of Adani Entreprise has turned into a nightmare.

These revelations even risk undermining “the Indian economic development model”, assures the Wall Street Journal.

Gautam Adani's personal fortune even took a hit, dropping from over $100 billion to $85 billion in one week.

Hindenburg research claims to have discovered that the crazy growth of the Adani empire owes less to the economic vision of its founder than to financial manipulations involving a vast network of front companies based in tax havens.

This fund, led by investor-activist Nathan Anderson, accuses Gautam Adani of using members of his family to commit multiple frauds to make the empire look more profitable than it was.

By artificially inflating the value of Adani (using front companies to buy shares to drive up the stock price), these manipulations would have created an illusion of opulence to reassure banks called upon to lend money. to the group, explains the Financial Times.

“Tissues of lies” and “attacks against India”: these were Adani's two axes of defense, starting on January 26th.

The conglomerate even published a lengthy indictment of more than 400 pages to try to demonstrate that the Hindenburg Research allegations were just trading tactics to try to cause a fall in the share price and make money. on the back of these stock market misadventures.

Hindenburg Research vs a friend of Modi

It must be said that this is precisely the core business of structures like Hindenburg Research.

“These are funds whose goal is to make money by flushing out weaknesses, exposing cheaters and tracking down companies that are overvalued on the stock market,” summarizes Alexandre Baradez, market analyst at IG France.

The most famous of these activist funds, Citron Research, was the first to warn in 2012 of the fragile financial health of Evergrande, the Chinese real estate giant with feet of clay.

Hindenburg Research, far from having the same hunting record as Citron, has however already succeeded in pushing the American authorities to investigate Nikola, an American start-up specializing in electric trucks.

In 2021, its CEO was found guilty of multiple frauds.

But with Gautam Adani, Hindenburg Research has chosen an adversary of a different caliber.

In 30 years, this conglomerate has become one of the main symbols of the success of the Indian economy on the international scene.

Gautam Adani started out in the 1980s as a diamond merchant.

It then diversified thanks to the economic reforms implemented by successive governments in India.

Adani Enterprise is, today, essentially an infrastructure giant, notably owning several Indian ports.

But it also has mines, thermal power plants, wants to be a player in the energy transition in India and has bought several media.

Above all, Gautam Adani appears to be close to Narendra Modi, the current Indian Prime Minister.

Both men hail from the same region - Gujarat - and the businessman is often referred to as the “Rockefeller of Modi”.

"Since Narendra Modi's accession to power, Gautam Adani's fortune has increased by around 230%", underlined the Financial Times in an article published in 2020.

Suspicions of favoritism have dogged Adani's boss throughout his career.

There was even talk of an investigation, especially after obtaining the management of five airports in 2018. Shortly before this "gift", the law had been modified, allowing companies without experience in this field to participate in the call for offer… which was the case for Adani Enterprise.

But Gautam Adani was never worried.

He is seen as an untouchable businessman in India, while his empire appears to be “too big to fail”, which means that a bankruptcy of Adani would have repercussions on the whole country.

A danger for the Indian economic model?

This is why the attack on Hindenburg Research “is not a problem only for Adani, but also for India”, assures Alexandre Baradez.

Suspicion of fraud can be "lethal poison for a conglomerate like this", adds the analyst.

Adani Entreprise has taken on very heavy debt over the years to implement its many pharaonic infrastructure projects.

“This is a group that regularly needs access to new loans to finance its debt [notably the repayment of interest, editor’s note], and if such accusations were to cool the banks, the problems could quickly become very serious. ”, says Alexandre Baradez.

According to him, a group of this size could collapse "in a matter of weeks" if no one else wanted to lend it money.

Such a scenario would be catastrophic for the Indian economy: most Indian banks have lent large sums to this group, and their financial health depends on Adani's ability to repay them, recalls the Wall Street Journal.

“The risk is also that investors turn away more widely from the Indian market, because their faith in the economic fabric of the country will have been shaken”, notes Alexandre Baradez.

Enough to call into question the image of confidence that India could arouse, among investors, in the face of China.

Hindenburg's report thus puts the Indian authorities in a very delicate position.

They can launch an investigation following these allegations, at the risk of being accused of playing into the game of an "anti-Indian" campaign.

In the nationalist India of Narendra Modi, it's a risky bet.

But international investors may not understand the refusal to open an investigation.

The summary of the

France 24 week invites you to come back to the news that marked the week

I subscribe

Take international news everywhere with you!

Download the France 24 app