Adani probe comes to end as Sebi tightens disclosure for big firms

By Advait Palepu and Chris Kay

Findings from an almost three year investigation by India’s capital markets watchdog into Gautam Adani’s eponymous conglomerate are finally expected to land at the desk of the nation’s Supreme Court on Monday.
 

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 the Securities and Exchange Board of India 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.

 

Sebi had 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.

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. 

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.”