Indian Regulator Seeks Two More Weeks to Wrap Up Adani Probe

Advait Palepu and Chris Kay
·4 min read
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(Bloomberg) -- India’s capital markets watchdog has sought yet another 15 days to finish up the almost three-year-long investigation into Gautam Adani’s eponymous conglomerate, after the three-month extension already granted by the nation’s Supreme Court ended on Monday.

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The Securities and Exchange Board of India told the Supreme Court that it needs the additional time to wrap up work on seven out of the 24 matters it has been asked to investigate in the wake of the scathing attack by shortseller Hindenburg Research that accused the Adani Group of wide-ranging corporate malfeasance.

Read more: Indian Regulator Seeks Extension to Submit Adani Probe Report

Several observers are expecting minor, if any, red marks against the Adani Group after an expert panel appointed by India’s top court in May said Sebi had “drawn a blank” in its investigation into 13 overseas entities alleged to be fronts for Adani companies. The panel accused Sebi of having diluted rules that would have helped break through so-called opaque structures and the regulator’s job is made harder by India’s overlapping web of corporate laws that offer loopholes large businesses often exploit.

Back in May Sebi had already sought more time to complete the probe, but the court — amid a slump in Adani shares following a damaging report published in January by US shortseller Hindenburg Research — imposed an Aug. 14 deadline.

“I am not confident that Sebi will file a robust case,” said Bhaskar Chakravorti, dean of global business at The Fletcher School at Tufts University. Adani Group “will mostly escape serious negative impact and over time build back up unless the Supreme Court and the regulators do something dramatically different,” he added.

Read more: Adani Probe Will Only Produce Heat, Not Light: Andy Mukherjee

Sebi began looking at offshore investments into Adani’s ports, power and infrastructure empire in October 2020. The heart of the matter is whether Adani used companies registered abroad to conduct business and pump up his share prices without properly disclosing affiliations. Adani has repeatedly denied wrongdoing and said it has made all required disclosures.

Hindenburg’s broadside, more than two years later, reiterated the allegations and heaped pressure on the regulator to hasten the probe.

Adani Group and Sebi didn’t respond to requests for comment. The regulator has previously told the Supreme Court it has continuously tightened rules concerning so-called beneficial ownership and related-party transactions, key aspects of a hearing into whether the Adani Group manipulated its stock price.

‘Direct Response’

In June, Sebi’s board also approved changes mandating additional disclosures from foreign portfolio investors and granular information on their ownership and economic interests from September.

Rohit Jain, a managing partner at New Delhi-based law firm Singhania & Co., said the move was a “direct response to the Adani fiasco.”

This month, Sebi said it was also considering making India’s conglomerates report transcations involving their unlisted group companies, though it didn’t offer more detail or specify a time line.

Shares of Adani’s 10 listed companies have recouped about $47 billion after having lost more than $150 billion of their combined value in the aftermath of the Hindenburg report.

On Monday, shares of the group’s flagship entity Adani Enterprises Ltd. fell as much as 5.5%. All 10 firms related to the group retreated, with Adani Ports and Special Economic Zone Ltd. falling as much as 3.8% while Ambuja Cements Ltd. down 4.1% in Mumbai.

The conglomerate is also refocusing on core business interests, acquiring an Indian cement maker and exploring the sale of a roughly $2.6 billion stake in a consumer-staple joint venture with Wilmar International Ltd., Bloomberg News reported earlier this month.

“Adani took a hit for a few months,” said Nirmalya Kumar, a marketing professor at Singapore Management University. “But now the doubts about governance have been papered over.”

It’s unclear yet what the Sebi report being submitted to the Supreme Court on Monday will contain. The spectrum of possibilities range from no adverse findings to a hard-hitting report that may introduce groundbreaking precedent for minority shareholders.

“Adani’s magic combination of incumbency, embedded network of business relationships and continued political clout may win the day,” said Chakravorti at Tufts University. “Adani, despite all the post-Hindenburg brouhaha, will be right there at the head of the pack.”

--With assistance from P R Sanjai and Ashutosh Joshi.

(Updated throughout)

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