WEDNESDAY, APRIL 24, 2024
Vivek Menezes
lmost precisely 86 years ago in Manchester Township in New Jersey, an amassed media came together to watch the arrival from Germany of the gargantuan new Hindenburg airship (technically it’s classified as zeppelin or dirigible), but instead witnessed one of the most notorious airfield disasters. The balloon exploded after catching fire, and 35 out of 97 people on board were killed. As a result, the public lost confidence in this new mode of transport so comprehensively that the entire technology went away for good.
Fast forward to 2016, when the young American financial analyst Nate Anderson (he’s still only 38) filed his first whistleblower report to the Securities and Exchange Commission. His target sued and lost, and the next year Anderson set up his own company specializing in “forensic financial research.” Its website says “we view the Hindenburg as the epitome of a totally man-made, totally avoidable disaster. Almost 100 people were loaded onto a balloon filled with the most flammable element in the universe. This was despite dozens of earlier hydrogen-based aircraft meeting with similar fates. Nonetheless, the operators of the Hindenburg forged ahead, adopting the oft-cited Wall Street maxim of “this time is different”. We look for similar man-made disasters floating around in the market and aim to shed light on them before they lure in more unsuspecting victims.”
All this is essential context for the stunning intervention that Hindenburg made on January 24th, with their extraordinary report Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History, with its two crucial conclusions: “ the INR 17.8 trillion (U.S. $218 billion) Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades” and “even if you ignore the findings of our investigation and take the financials of Adani Group at face value, its 7 key listed companies have 85% downside purely on a fundamental basis owing to sky-high valuations.” Then, this devastating footnote: “we have taken a short position in Adani Group Companies through U.S.-traded bonds and non-Indian-traded derivative instruments.”
Following publication, all through last week, the Indian markets grappled with the question of whether to continue to bet on the storied rags-to-riches Gujarati businessman and his close friendship with Narendra Modi, or go the opposite way on the say-so of an unknown American millennial and his handful of employees. On this, Hindenburg was typically succinct: “We have uncovered evidence of brazen accounting fraud, stock manipulation and money laundering at Adani, taking place over the course of decades. Adani has pulled off this gargantuan feat with the help of enablers in government and a cottage industry of international companies that facilitate these activities. These issues of corruption permeate multiple layers of government. According to numerous sources we spoke with, Indian securities regulator SEBI seems more inclined to protect the perpetrators than punish them.”
We all know what happened next: over the past five days of trading, Adani’s companies lost over $100 billion in value, and the new $2.4 billion share offer from the flagship Adani Enterprises was cancelled. As Alex Travelli wrote in the New York Times yesterday, “Adani’s fall could jeopardize the idea of India as the world’s next great hope as a driver of global economic growth. Its government is facing questions about whether financial regulators were doing their jobs properly while the Adani Group threw off funny signals for Hindenburg to pick apart. The country’s chief regulator has had a sterling reputation in the three decades since it was empowered by market-crashing stock scam. Now, the concern is that India’s financial oversight has bigger holes than believed, or that the politically connected Mr. Adani somehow got a free pass.”
Trevelli summarizes the recent history succinctly: “Mr. Modi’s image was badly damaged in the wake of the mass violence [in Gujarat in 2002], in which 1,000 people, most of them Muslims, were killed. The leaders of Mr. Modi’s own Bharatiya Janata Party, then in control of the national government, were furious about the stain to the country’s image caused by the bloodshed in Gujarat. India’s biggest businesses were, if anything, even more critical. The leaders of two of the country’s oldest business groups, Bajaj and Godrej, questioned Mr. Modi about his state’s “law-and-order situation” at a meeting of India’s largest trade association in 2003. It was the Gujarati business community that came to Mr. Modi’s aid then. Mr. Adani helped create an organization to diminish the trade association locally and, working with Mr. Modi’s state government, helped create an annual conference for investors with the name “Vibrant Gujarat.”’
That was the birth of the “Gujarat model” in which “market-based or at least private development displaced the creaky, state-driven model of earlier governments. It gave an answer to many economists and ordinary citizens who wanted to see India’s progress in the global marketplace sped along” and, “over time, Mr. Modi’s image was rehabilitated. When he ran for national office in 2014, he was able to stand as an icon of modern, tech-driven economic development. After he triumphed, he flew to Delhi, the seat of national power, on Mr. Adani’s private jet.” Since then, the PM has only grown more dominant, as have the fortunes of his favourite businessman, who started expanding to take over more and more sectors of the economy, from NDTV to the national airports. And then the Hindenburg brought everything crashing down.
Let’s not make any hasty predictions at this point, because this story is very far from over. There’s plenty of fight left in Adani, and the Indian economy is far too large, diverse and resilient to be held back for very long despite the current setbacks. But the bigger questions raised by this entire shocking, traumatic episode cannot be ignored. How is it that India’s regulatory framework stood by as all this brazen criminality was occurring? Why is it that the vast business communities, and highly astute financial establishment, continue to maintain shamefaced silence about what everyone knew all along? When did it become effectively forbidden to speak truth to power in India in the 21st century? Is this democracy?
(Vivek Menezes is a writer and co-founder of the Goa Arts and Literature Festival)
