#ModaniHeist: India (Inc) After Hindenburg: An Account
Sukla Sen
Adani crisis puts India's winner-take-all economy on trial
Under new scrutiny as election nears, India Inc. pulls back on new investments
MUMBAI -- The atmosphere was festive at the news conference of Adani Enterprises at South Mumbai's posh Trident hotel on Jan. 19. The flagship company of the Adani Group, India's largest private port and airport operator, was preparing a share sale to raise 200 billion rupees ($2.43 billion). Investment bankers being served vegetarian food and nonalcoholic beverages were confident the sale would be oversubscribed by several times, breaking previous records.
Addressing the media via video link from the group's corporate headquarters in Ahmedabad, 526 kilometers north of Mumbai, Jugeshinder Singh, Adani's chief financial officer, talked passionately about how investors could buy into "strong businesses" incubated by the company and how the group is spreading equity culture so that retail investors could become rich. "When you travel across India," a jubilant Sxingh said, "you can see our assets like ports, airports and data centers for yourself. These are tangible, cash-generating assets, and investors can look forward to participating in the success of these ventures."
But the celebration did not last long. Five days after the conference, and on the eve of the share issue, U.S.-based short-seller Hindenburg Research released a report accusing the group of stock manipulation and accounting fraud. The short seller alleged Adani was using offshore shell entities in tax havens and using import and export documentation to generate "illegitimate" sales and siphon off funds from its companies. Hindenburg Research also disclosed that it had taken a short position in Adani Group companies through U.S.-traded bonds and non-Indian-traded derivative instruments.
Investment bankers speak at an Adani Enterprises news conference in Mumbai, India, on Jan. 19, held to announce the company's Follow-on Public Offering. © AFP/JijiAdani strongly denied the allegations in a 413-page response released on Jan. 29, saying the report was intended only to "create a false market in securities to enable Hindenburg, an admitted short seller, to book massive financial gains through wrongful means at the cost of countless investors."
But the damage was done. The share sale flopped, and by Feb. 2 stock prices of several group companies had fallen by one-third. By that evening, the company had decided to return the funds raised from investors.
Three months on, the dramatic flameout and partial recovery of the Adani Group continues to captivate corporate India, with other companies concerned that sentiment toward Indian business may be taking a collective hit.
The group's total market valuation has gained 46% from its lowest point in late February, thanks to the swift prepayment of debt by the Adani family and a strategy to move away from debt-laden new projects and acquisitions. Despite the recovery, the total market valuations of the 10 listed companies of the Adani Group have fallen by 58.9% from their peak on Sept. 20, when the group's total market valuation reached 22.96 trillion rupees.
The Adani Group's roller coaster ride -- a dizzying rise in its share price starting in 2020 followed by the abrupt crash in January this year -- has plunged India Inc., as the cluster of family-run conglomerates is called, into an unprecedented period of uncertainty and even divided the country politically.
Supporters of the Narendra Modi government have backed Adani, while opposition parties have used the scandal to attack Modi, citing his proximity to some big business houses.
Modi's ruling Bharatiya Janata Party in March blocked calls for a parliamentary committee probe into the Hindenburg report. In response, on April 7, Rahul Gandhi, a member and former president of the opposition Indian National Congress party, tweeted: "The real question is, why does the BJP defend Adani so vehemently?"
The scandal has prompted broader scrutiny of the tight links between government and business in India and raised questions about the so-called India Inc. model, in which a handful of large companies dominate domestic industry, insulated from foreign competition by high tariffs.
Narendra Modi, then chief minister of Gujarat state, and Gautam Adani, chair of the Adani Group, meet at the Vibrant Gujarat Global Summit in January 2011 in Gandhinagar, India. (File photo by Getty Images)India is increasingly a winner-take-all economy: Last year, no more than 20 companies took home approximately 80% of the profits generated there, up from 40% a decade ago, according to Marcellus Investment Advisers.
In a paper published last month by the Brookings Institution, Viral Acharya, a former deputy governor of the Reserve Bank of India, called for measures to break up Indian conglomerates, to "increase competition and to reduce their pricing power." Acharya said India's "big five" groups -- Reliance Industries (Mukesh Ambani's group), Tata Group, Aditya Birla Group, Adani Group and Bharti Enterprises -- are able to "exert extraordinary pricing power and capture economic rents relative to other firms in the industry." They do not have to compete with international peers in many sectors and derive most of their revenues domestically, he said, adding that their dominance is keeping core inflation persistently high.
"It would be better to make India more competition-friendly," Acharya wrote, "and less incumbent-, especially less conglomerate-friendly."
The political stakes are only going to increase in the run-up to an election next year. India's government has already announced a huge infrastructure spending spree that is expected to swell the revenues of the top industrial groups. The government's capital expenditure budget -- which increased to 3.3% of gross domestic product in the fiscal year starting in April, a 17-year high -- represents billions of dollars in lucrative contracts that would ordinarily go to this handful of conglomerates.
Adani, for its part, has announced a pullback from previously ambitious expansion plans, telling bond investors it will focus on existing projects rather than winning new ones. Other conglomerates also have begun to take a cautious approach to new projects, according to insiders.
"All groups are focusing on completing ongoing projects and are announcing large-sized projects during investment summits just to keep the politicians happy," the head of a finance company said, asking not to be named. "But there is a lull in actual investments due to multiple factors including elections next year."
"A lot of political capital"
India Inc. spans sectors from oil and gas, to telecoms to steel and cement, often relying on government orders and highly subsidized land, water and electricity allotted for large industrial projects. Some of these land allotments for large projects, however, wind up as real estate developments.
The largest listed entity within India Inc. is Reliance Industries, owned by India's richest man, Mukesh Ambani. Reliance has a significant presence in oil and gas, petrochemicals, retail, telecommunications and media. A bitter succession crisis split the company after Mukesh's younger brother Anil Ambani in 2005 was given the telecom, electricity generation, financial services and infrastructure businesses in a family settlement. His companies later went bankrupt. Mukesh, meanwhile, reentered the telecom business and now runs India's largest telco, one with 439.3 million subscribers, far more than the entire population of the United States.
A Reliance Industries oil refinery in Gujarat, India, in July 2021. Reliance is India Inc.'s largest listed entity. © Getty ImagesIndia's oldest conglomerate, Tata Group, owns India's biggest software exporter, Tata Consultancy Services. Tata Steel has operations in the U.K. and Europe. And Tata Motors owns the iconic luxury car brand Jaguar Land Rover, which on April 19 announced an $18.6 billion push into electric vehicles.
Tata is also investing in semiconductor and online commerce ventures -- part of a five-year, $90 billion investment plan across its businesses. In 2022, Tata Group acquired Air India from the Indian government, fending off a rival bid from a loss-making airline. Air India was started by Tata Group patriarch JRD Tata in 1932 but was nationalized by the government in 1953.
Tata Group chairman Natarajan Chandrasekaran poses for a portait during an interview with Nikkei in December 2022. (Photo by Mayumi Tsumita)The Sajjan Jindal family, which set up cash-spinning JSW Steel in the 1980s, today owns stakes in electricity generation outfits, cement companies and paint makers. In an interview with the Financial Times on April 16, Jindal announced a seven-year, $65 billion investment plan that includes electric vehicles and infrastructure.
The Aditya Birla Group, chaired by Kumar Mangalam Birla, owns India's largest cement company, offline retailers, metal makers and financial services companies. Group company Hindalco Industries owns American industrial aluminum multinational Novelis. The Indian government picked up a 33% stake in loss-making telecommunications venture Vodafone Idea, a company owned by Vodafone PLC and Birla, in lieu of massive dues owed by the company.
The Sunil Mittal family owns Bharti Airtel, a cellphone service provider with operations in India and Africa. The family, which has made billions from the venture, also owns stakes in insurance and real estate companies. Mittal also invested in U.K.-based satellite telecommunications company OneWeb.
The common denominator throughout India Inc. is political backing, which has become crucial to thrive. "In India, it's a well-known fact that even if anyone opens a small shop on the street side, one would need the blessings of the local police and politicians," said the head of an Indian advisory who asked to remain anonymous. "Running a large conglomerate would require a lot of political capital."
In recent years, the Modi government removed several barriers to business as part of its maximum governance initiative. Still, head counts in corporate affairs departments have increased to influence policymakers, senior bureaucrats and regulators. Several retired civil servants, bankers, tax commissioners and regulators currently sit on the boards of the group companies of many conglomerates to help them navigate bureaucratic and other governmental hurdles, at the state level and in the central government.
The Adani episode focused media attention on the group's close ties with Modi, who in February 2013 famously attended the wedding of Adani's son Karan. Several high-profile politicians including top opposition leaders attended the wedding of Mukesh Ambani's daughter Isha in December 2018.
Reliance Industries chairman Mukesh Ambani, right, his wife Nita Ambani, second from left, son Anant Ambani, second from right, daughter Isha and brother Anil Ambani arrive for son Akash Ambani's wedding in Mumbai, India, in March 2019. © APAdani's success at winning contracts - it has acquired the rights to operate and develop six airports, road projects and redevelopment of Mumbai's slum Dharavi - is sometimes attributed by the opposition to political links. But Adani supporters say that it won all the government contracts in fair and transparent processes.
Country club atmosphere
India Inc.'s players also frequently benefit from a curious source of goodwill: one another. Often rivals, the groups nonetheless appear to follow a set of unwritten rules not to compete too hard.
Many of Adani's fiercest competitors in February stepped in to try to save the group's doomed share issue rather than see it fall apart following the Hindenburg report. JSW's Sajjan Jindal, a rival in cement and infrastructure, said his motivation for investing in the shares of Adani Enterprises was "to have solidarity with our colleagues in the industry." Jindal told the Financial Times that Adani did not call him with a request to put money in the share sale.
The bitter experience of unbridled competition has taught India's corporate chieftains the virtue of peaceful coexistence, and groups tend to recognize one another's sectoral and geographical boundaries.
High markups in certain sectors such as cement and basic metals indicate some of the conglomerates in these sectors refrain from challenging one another in certain markets, experts say. "This would suggest they don't compete as aggressively, as otherwise they would eat into each other's markups," Acharya said in an email interview with Nikkei.
Indian Prime Minister Modi, third from right, attends the India Mobile Congress in New Delhi in October 2022 with Reliance Industries Ltd. chair Mukesh Ambani, far left, and Bharti Airtel founder Sunil Mittal, far right. © Getty ImagesNitin Bhasin, co-head of institutional equities at Ambit, the Mumbai-based finance firm, said India Inc. conglomerates seldom step into one another's core business areas. However, there have been exceptions, such as steel, cement and telecommunications. Similarly, the Tatas and Reliance have locked horns in retail.
He said the lack of competition, particularly in infrastructure, mainly stems from the resource-intensive nature of some sectors.
"Why didn't many private companies set up steel plants after the Tatas and Jindals? Because the domestic consumption wasn't enough and they would have to depend on exports," Bhasin said. "In Adani's case, perhaps nobody had the dream and the vision to become such a resource-heavy business with such execution capabilities. Everybody in India was focused so much on [the] consumer, but not infrastructure. Everybody was interested in branding and not mega projects."
"Corporate jealousy was obviously there"
The Hindenburg accusations nonetheless offered a rare glimpse into the tensions churning beneath the surface of the normally placid country club atmosphere of India Inc.
In the months leading up to the report, the delicate balance that governs relations between the conglomerates had been under severe strain due to Adani's meteoric rise. It had snapped up contracts for airports and roads as well as for the redevelopment of Mumbai's Dharavi slums, beating rivals in open and transparent tenders, and directly competing head-to-head with some of the established players like the Birlas and Mukesh Ambani.
"Corporate jealousy was obviously there when Adani was growing," said JN Gupta, managing director of Stakeholders Empowerment Services, a proxy advisory.
Haifa Port in Haifa, Israel, was bought by Adani Ports in January for over $1 billion. © ReutersIn August 2021, Adani announced plans to enter the petrochemical business, an area dominated by Ambani's Reliance Industries. Adani was also aggressively expanding in electricity generation and distribution, having acquired Mumbai assets from former billionaire Anil Ambani in 2018 and competing head-on against the Tatas. Adani entered the cement business last year by acquiring Ambuja Cement, challenging UltraTech Cement, owned by the Aditya Birla group.
Adani also made rivals uneasy by entering financial services and airport operations. In February 2019, Adani acquired the mandate to operate six airports, thus giving competition to GMR Group, which operates India's largest gateway, in New Delhi, as well as airports in Hyderabad and North Goa. In August 2020, Adani acquired Mumbai airport from the GVK Group after GVK, a Hyderabad-based group, defaulted on bank loans. Two other investors in Mumbai airport, South Africa's Bidvest Group and Airports Company South Africa, also sold their stakes.
Adani's foray into cement and petrochemicals was what raised alarm bells among competitors. Just before the Hindenburg report, Adani Group was planning to invest a massive $107 billion in projects like green energy, roads, power plants, petrochemicals and infrastructure over the next decade.
"There was a sense of alarm among the Indian business houses as Adani's market valuation touched $235.5 billion and made him the second richest man on the planet," a Mumbai-based CEO said, asking not to be quoted. He added that Adani's acquisition of NDTV, a national TV channel, in December 2022 did not go down well with many businessmen. "There was a great sense of relief among many businessmen that Adani's shares have declined," the CEO said.
The Ambuja Cements plant near Darlaghat, Solan district, in the state of Himachal Pradesh, is owned by the Adani Group. © ReutersIndeed some have connected the appearance of the Hindenburg report to the unhappiness of Adani's competitors. Indeed, even before the Hindenburg report was released, rivals were briefing local journalists with allegations against Adani.
However, Gupta of Stakeholders Empowerment Services said there is no evidence that corporate rivals had anything to do with the Hindenburg report, which appeared to be sourced primarily from local news articles. "I could not find anything in the report that was not already in the public domain," Gupta said. Hindenburg did not respond to a request for comment.
Indeed, shares of several of the Adani Group's listed companies were widely seen as overvalued, thus presenting an attractive bull's-eye for any short seller. Before the Hindenburg Report was published, Adani Enterprises was trading at a price-earnings ratio of 191-to-1. It has since fallen to 119. Adani Transmission's P/E likewise fell to 100 from 279.
"Even after such a slip-up, I still believe the current levels are expensive for an investor in the current markets scenario," said Prashanth Tapse, a senior vice president of Mehta Equities, an online share trading company.
Back to the drawing board
Since the controversy emerged, the Adani Group has slowed down on acquisitions and new projects to focus on core infrastructure projects already underway.
The group in February and March held several roadshows in Singapore and Hong Kong as part of its outreach to bondholders, bankers and foreign investors, creating opportunities to talk about the group's debt reduction plan and cash flow. During the meetings, Singh and Anupam Misra, head of corporate finance, told investors that the group has enough cash to prepay part of its debt, including overseas debt, as per a presentation seen by Nikkei Asia.
The group informed investors that it would not take on any additional debt but focus on completing existing large projects, such as a new airport in Mumbai costing around 200 billion rupees and an expressway in Uttar Pradesh.
To reassure investors, the Adani family on March 2 sold shares in four listed companies worth $1.87 billion to U.S. global equity boutique GQG Partners. Proceeds are to be used to prepay debt.
India's Supreme Court on March 2 ordered an in-depth investigation by an independent six-member panel led by a retired judge to look into the allegations. The investigation was welcomed by the Group chairman, Gautam Adani, in a social media post. This helped the group's shares as well as investor sentiment.
Billionaire Gautam Adani speaks at an inauguration ceremony after his conglomerate completed the purchase of Haifa Port in Israel on Jan. 31. © ReutersThe government's plans to increase infrastructure spending in the run-up to the election will be a windfall for all the big conglomerates. "Roads and railways, which are key focus areas of investments by the government, will continue to outperform other segments," said Mohit Makhija, senior director of CRISIL Ratings, an S&P Global company.
The government expects its infrastructure and housing spending spree to generate sales of cement, steel and heavy vehicles like trucks and tractors. It also expects a boost in rural employment numbers.
"In India, public memory is short, and investors have already forgotten the Hindenburg report," said Ashish Kehair, CEO of Nuvama, a wealth management company. "The investors are worried about the next black swan event, low corporate earnings in the March quarter or a weak monsoon which may upset the apple cart."
Analysts say global factors such as rising interest rates and the Russia-Ukraine war, not to mention India's general elections, will play an important role in the conglomerates' investment decision-making.
An analysis by Care Ratings of 659 listed non-finance companies in India shows private capital expenditures have rebounded but remain far below pre-pandemic levels.
Care representatives said new investment projects announced by all Indian companies in the quarter ending December 2022 were at 6.7 trillion rupees, far higher than the quarterly average of 4.7 trillion rupees in the financial year ending March 2020. The private sector's share in new investment announcements remained above 75%, the highest level in recent years.
"But the uncertain global and domestic economic environment and tightening of financing conditions will keep the private players cautious," said Rajani Sinha, chief economist of Care Ratings. "We expect private capex to pick up only modestly in the fiscal year ending March 2024."
Additional reporting by Sayan Chakraborty in Bengaluru.
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Register for our newsletters- READ MUMBAI -- The atmosphere was festive at the news conference of Adani Enterprises at South Mumbai's posh Trident hotel on Jan. 19. The flagship company of the Adani Group, India's largest private port and airport operator, was preparing a share sale to raise 200 billion rupees ($2.43 billion). Investment bankers being served vegetarian food and nonalcoholic beverages were confident the sale would be oversubscribed by several times, breaking previous records.
Addressing the media via video link from the group's corporate headquarters in Ahmedabad, 526 kilometers north of Mumbai, Jugeshinder Singh, Adani's chief financial officer, talked passionately about how investors could buy into "strong businesses" incubated by the company and how the group is spreading equity culture so that retail investors could become rich. "When you travel across India," a jubilant Singh said, "you can see our assets like ports, airports and data centers for yourself. These are tangible, cash-generating assets, and investors can look forward to participating in the success of these ventures."
But the celebration did not last long. Five days after the conference, and on the eve of the share issue, U.S.-based short-seller Hindenburg Research released a report accusing the group of stock manipulation and accounting fraud. The short seller alleged Adani was using offshore shell entities in tax havens and using import and export documentation to generate "illegitimate" sales and siphon off funds from its companies. Hindenburg Research also disclosed that it had taken a short position in Adani Group companies through U.S.-traded bonds and non-Indian-traded derivative instruments.
Investment bankers speak at an Adani Enterprises news conference in Mumbai, India, on Jan. 19, held to announce the company's Follow-on Public Offering. © AFP/JijiAdani strongly denied the allegations in a 413-page response released on Jan. 29, saying the report was intended only to "create a false market in securities to enable Hindenburg, an admitted short seller, to book massive financial gains through wrongful means at the cost of countless investors."
But the damage was done. The share sale flopped, and by Feb. 2 stock prices of several group companies had fallen by one-third. By that evening, the company had decided to return the funds raised from investors.
Three months on, the dramatic flameout and partial recovery of the Adani Group continues to captivate corporate India, with other companies concerned that sentiment toward Indian business may be taking a collective hit.
The group's total market valuation has gained 46% from its lowest point in late February, thanks to the swift prepayment of debt by the Adani family and a strategy to move away from debt-laden new projects and acquisitions. Despite the recovery, the total market valuations of the 10 listed companies of the Adani Group have fallen by 58.9% from their peak on Sept. 20, when the group's total market valuation reached 22.96 trillion rupees.
The Adani Group's roller coaster ride -- a dizzying rise in its share price starting in 2020 followed by the abrupt crash in January this year -- has plunged India Inc., as the cluster of family-run conglomerates is called, into an unprecedented period of uncertainty and even divided the country politically.
Supporters of the Narendra Modi government have backed Adani, while opposition parties have used the scandal to attack Modi, citing his proximity to some big business houses.
Modi's ruling Bharatiya Janata Party in March blocked calls for a parliamentary committee probe into the Hindenburg report. In response, on April 7, Rahul Gandhi, a member and former president of the opposition Indian National Congress party, tweeted: "The real question is, why does the BJP defend Adani so vehemently?"
The scandal has prompted broader scrutiny of the tight links between government and business in India and raised questions about the so-called India Inc. model, in which a handful of large companies dominate domestic industry, insulated from foreign competition by high tariffs.
Narendra Modi, then chief minister of Gujarat state, and Gautam Adani, chair of the Adani Group, meet at the Vibrant Gujarat Global Summit in January 2011 in Gandhinagar, India. (File photo by Getty Images)India is increasingly a winner-take-all economy: Last year, no more than 20 companies took home approximately 80% of the profits generated there, up from 40% a decade ago, according to Marcellus Investment Advisers.
In a paper published last month by the Brookings Institution, Viral Acharya, a former deputy governor of the Reserve Bank of India, called for measures to break up Indian conglomerates, to "increase competition and to reduce their pricing power." Acharya said India's "big five" groups -- Reliance Industries (Mukesh Ambani's group), Tata Group, Aditya Birla Group, Adani Group and Bharti Enterprises -- are able to "exert extraordinary pricing power and capture economic rents relative to other firms in the industry." They do not have to compete with international peers in many sectors and derive most of their revenues domestically, he said, adding that their dominance is keeping core inflation persistently high.
"It would be better to make India more competition-friendly," Acharya wrote, "and less incumbent-, especially less conglomerate-friendly."
The political stakes are only going to increase in the run-up to an election next year. India's government has already announced a huge infrastructure spending spree that is expected to swell the revenues of the top industrial groups. The government's capital expenditure budget -- which increased to 3.3% of gross domestic product in the fiscal year starting in April, a 17-year high -- represents billions of dollars in lucrative contracts that would ordinarily go to this handful of conglomerates.
Adani, for its part, has announced a pullback from previously ambitious expansion plans, telling bond investors it will focus on existing projects rather than winning new ones. Other conglomerates also have begun to take a cautious approach to new projects, according to insiders.
"All groups are focusing on completing ongoing projects and are announcing large-sized projects during investment summits just to keep the politicians happy," the head of a finance company said, asking not to be named. "But there is a lull in actual investments due to multiple factors including elections next year."
"A lot of political capital"
India Inc. spans sectors from oil and gas, to telecoms to steel and cement, often relying on government orders and highly subsidized land, water and electricity allotted for large industrial projects. Some of these land allotments for large projects, however, wind up as real estate developments.
The largest listed entity within India Inc. is Reliance Industries, owned by India's richest man, Mukesh Ambani. Reliance has a significant presence in oil and gas, petrochemicals, retail, telecommunications and media. A bitter succession crisis split the company after Mukesh's younger brother Anil Ambani in 2005 was given the telecom, electricity generation, financial services and infrastructure businesses in a family settlement. His companies later went bankrupt. Mukesh, meanwhile, reentered the telecom business and now runs India's largest telco, one with 439.3 million subscribers, far more than the entire population of the United States.
A Reliance Industries oil refinery in Gujarat, India, in July 2021. Reliance is India Inc.'s largest listed entity. © Getty ImagesIndia's oldest conglomerate, Tata Group, owns India's biggest software exporter, Tata Consultancy Services. Tata Steel has operations in the U.K. and Europe. And Tata Motors owns the iconic luxury car brand Jaguar Land Rover, which on April 19 announced an $18.6 billion push into electric vehicles.
Tata is also investing in semiconductor and online commerce ventures -- part of a five-year, $90 billion investment plan across its businesses. In 2022, Tata Group acquired Air India from the Indian government, fending off a rival bid from a loss-making airline. Air India was started by Tata Group patriarch JRD Tata in 1932 but was nationalized by the government in 1953.
Tata Group chairman Natarajan Chandrasekaran poses for a portait during an interview with Nikkei in December 2022. (Photo by Mayumi Tsumita)The Sajjan Jindal family, which set up cash-spinning JSW Steel in the 1980s, today owns stakes in electricity generation outfits, cement companies and paint makers. In an interview with the Financial Times on April 16, Jindal announced a seven-year, $65 billion investment plan that includes electric vehicles and infrastructure.
The Aditya Birla Group, chaired by Kumar Mangalam Birla, owns India's largest cement company, offline retailers, metal makers and financial services companies. Group company Hindalco Industries owns American industrial aluminum multinational Novelis. The Indian government picked up a 33% stake in loss-making telecommunications venture Vodafone Idea, a company owned by Vodafone PLC and Birla, in lieu of massive dues owed by the company.
The Sunil Mittal family owns Bharti Airtel, a cellphone service provider with operations in India and Africa. The family, which has made billions from the venture, also owns stakes in insurance and real estate companies. Mittal also invested in U.K.-based satellite telecommunications company OneWeb.
The common denominator throughout India Inc. is political backing, which has become crucial to thrive. "In India, it's a well-known fact that even if anyone opens a small shop on the street side, one would need the blessings of the local police and politicians," said the head of an Indian advisory who asked to remain anonymous. "Running a large conglomerate would require a lot of political capital."
In recent years, the Modi government removed several barriers to business as part of its maximum governance initiative. Still, head counts in corporate affairs departments have increased to influence policymakers, senior bureaucrats and regulators. Several retired civil servants, bankers, tax commissioners and regulators currently sit on the boards of the group companies of many conglomerates to help them navigate bureaucratic and other governmental hurdles, at the state level and in the central government.
The Adani episode focused media attention on the group's close ties with Modi, who in February 2013 famously attended the wedding of Adani's son Karan. Several high-profile politicians including top opposition leaders attended the wedding of Mukesh Ambani's daughter Isha in December 2018.
Reliance Industries chairman Mukesh Ambani, right, his wife Nita Ambani, second from left, son Anant Ambani, second from right, daughter Isha and brother Anil Ambani arrive for son Akash Ambani's wedding in Mumbai, India, in March 2019. © APAdani's success at winning contracts - it has acquired the rights to operate and develop six airports, road projects and redevelopment of Mumbai's slum Dharavi - is sometimes attributed by the opposition to political links. But Adani supporters say that it won all the government contracts in fair and transparent processes.
Country club atmosphere
India Inc.'s players also frequently benefit from a curious source of goodwill: one another. Often rivals, the groups nonetheless appear to follow a set of unwritten rules not to compete too hard.
Many of Adani's fiercest competitors in February stepped in to try to save the group's doomed share issue rather than see it fall apart following the Hindenburg report. JSW's Sajjan Jindal, a rival in cement and infrastructure, said his motivation for investing in the shares of Adani Enterprises was "to have solidarity with our colleagues in the industry." Jindal told the Financial Times that Adani did not call him with a request to put money in the share sale.
The bitter experience of unbridled competition has taught India's corporate chieftains the virtue of peaceful coexistence, and groups tend to recognize one another's sectoral and geographical boundaries.
High markups in certain sectors such as cement and basic metals indicate some of the conglomerates in these sectors refrain from challenging one another in certain markets, experts say. "This would suggest they don't compete as aggressively, as otherwise they would eat into each other's markups," Acharya said in an email interview with Nikkei.
Indian Prime Minister Modi, third from right, attends the India Mobile Congress in New Delhi in October 2022 with Reliance Industries Ltd. chair Mukesh Ambani, far left, and Bharti Airtel founder Sunil Mittal, far right. © Getty ImagesNitin Bhasin, co-head of institutional equities at Ambit, the Mumbai-based finance firm, said India Inc. conglomerates seldom step into one another's core business areas. However, there have been exceptions, such as steel, cement and telecommunications. Similarly, the Tatas and Reliance have locked horns in retail.
He said the lack of competition, particularly in infrastructure, mainly stems from the resource-intensive nature of some sectors.
"Why didn't many private companies set up steel plants after the Tatas and Jindals? Because the domestic consumption wasn't enough and they would have to depend on exports," Bhasin said. "In Adani's case, perhaps nobody had the dream and the vision to become such a resource-heavy business with such execution capabilities. Everybody in India was focused so much on [the] consumer, but not infrastructure. Everybody was interested in branding and not mega projects."
"Corporate jealousy was obviously there"
The Hindenburg accusations nonetheless offered a rare glimpse into the tensions churning beneath the surface of the normally placid country club atmosphere of India Inc.
In the months leading up to the report, the delicate balance that governs relations between the conglomerates had been under severe strain due to Adani's meteoric rise. It had snapped up contracts for airports and roads as well as for the redevelopment of Mumbai's Dharavi slums, beating rivals in open and transparent tenders, and directly competing head-to-head with some of the established players like the Birlas and Mukesh Ambani.
"Corporate jealousy was obviously there when Adani was growing," said JN Gupta, managing director of Stakeholders Empowerment Services, a proxy advisory.
Haifa Port in Haifa, Israel, was bought by Adani Ports in January for over $1 billion. © ReutersIn August 2021, Adani announced plans to enter the petrochemical business, an area dominated by Ambani's Reliance Industries. Adani was also aggressively expanding in electricity generation and distribution, having acquired Mumbai assets from former billionaire Anil Ambani in 2018 and competing head-on against the Tatas. Adani entered the cement business last year by acquiring Ambuja Cement, challenging UltraTech Cement, owned by the Aditya Birla group.
Adani also made rivals uneasy by entering financial services and airport operations. In February 2019, Adani acquired the mandate to operate six airports, thus giving competition to GMR Group, which operates India's largest gateway, in New Delhi, as well as airports in Hyderabad and North Goa. In August 2020, Adani acquired Mumbai airport from the GVK Group after GVK, a Hyderabad-based group, defaulted on bank loans. Two other investors in Mumbai airport, South Africa's Bidvest Group and Airports Company South Africa, also sold their stakes.
Adani's foray into cement and petrochemicals was what raised alarm bells among competitors. Just before the Hindenburg report, Adani Group was planning to invest a massive $107 billion in projects like green energy, roads, power plants, petrochemicals and infrastructure over the next decade.
"There was a sense of alarm among the Indian business houses as Adani's market valuation touched $235.5 billion and made him the second richest man on the planet," a Mumbai-based CEO said, asking not to be quoted. He added that Adani's acquisition of NDTV, a national TV channel, in December 2022 did not go down well with many businessmen. "There was a great sense of relief among many businessmen that Adani's shares have declined," the CEO said.
The Ambuja Cements plant near Darlaghat, Solan district, in the state of Himachal Pradesh, is owned by the Adani Group. © ReutersIndeed some have connected the appearance of the Hindenburg report to the unhappiness of Adani's competitors. Indeed, even before the Hindenburg report was released, rivals were briefing local journalists with allegations against Adani.
However, Gupta of Stakeholders Empowerment Services said there is no evidence that corporate rivals had anything to do with the Hindenburg report, which appeared to be sourced primarily from local news articles. "I could not find anything in the report that was not already in the public domain," Gupta said. Hindenburg did not respond to a request for comment.
Indeed, shares of several of the Adani Group's listed companies were widely seen as overvalued, thus presenting an attractive bull's-eye for any short seller. Before the Hindenburg Report was published, Adani Enterprises was trading at a price-earnings ratio of 191-to-1. It has since fallen to 119. Adani Transmission's P/E likewise fell to 100 from 279.
"Even after such a slip-up, I still believe the current levels are expensive for an investor in the current markets scenario," said Prashanth Tapse, a senior vice president of Mehta Equities, an online share trading company.
Back to the drawing board
Since the controversy emerged, the Adani Group has slowed down on acquisitions and new projects to focus on core infrastructure projects already underway.
The group in February and March held several roadshows in Singapore and Hong Kong as part of its outreach to bondholders, bankers and foreign investors, creating opportunities to talk about the group's debt reduction plan and cash flow. During the meetings, Singh and Anupam Misra, head of corporate finance, told investors that the group has enough cash to prepay part of its debt, including overseas debt, as per a presentation seen by Nikkei Asia.
The group informed investors that it would not take on any additional debt but focus on completing existing large projects, such as a new airport in Mumbai costing around 200 billion rupees and an expressway in Uttar Pradesh.
To reassure investors, the Adani family on March 2 sold shares in four listed companies worth $1.87 billion to U.S. global equity boutique GQG Partners. Proceeds are to be used to prepay debt.
India's Supreme Court on March 2 ordered an in-depth investigation by an independent six-member panel led by a retired judge to look into the allegations. The investigation was welcomed by the Group chairman, Gautam Adani, in a social media post. This helped the group's shares as well as investor sentiment.
Billionaire Gautam Adani speaks at an inauguration ceremony after his conglomerate completed the purchase of Haifa Port in Israel on Jan. 31. © ReutersThe government's plans to increase infrastructure spending in the run-up to the election will be a windfall for all the big conglomerates. "Roads and railways, which are key focus areas of investments by the government, will continue to outperform other segments," said Mohit Makhija, senior director of CRISIL Ratings, an S&P Global company.
The government expects its infrastructure and housing spending spree to generate sales of cement, steel and heavy vehicles like trucks and tractors. It also expects a boost in rural employment numbers.
"In India, public memory is short, and investors have already forgotten the Hindenburg report," said Ashish Kehair, CEO of Nuvama, a wealth management company. "The investors are worried about the next black swan event, low corporate earnings in the March quarter or a weak monsoon which may upset the apple cart."
Analysts say global factors such as rising interest rates and the Russia-Ukraine war, not to mention India's general elections, will play an important role in the conglomerates' investment decision-making.
An analysis by Care Ratings of 659 listed non-finance companies in India shows private capital expenditures have rebounded but remain far below pre-pandemic levels.
Care representatives said new investment projects announced by all Indian companies in the quarter ending December 2022 were at 6.7 trillion rupees, far higher than the quarterly average of 4.7 trillion rupees in the financial year ending March 2020. The private sector's share in new investment announcements remained above 75%, the highest level in recent years.
"But the uncertain global and domestic economic environment and tightening of financing conditions will keep the private players cautious," said Rajani Sinha, chief economist of Care Ratings. "We expect private capex to pick up only modestly in the fiscal year ending March 2024."
Additional reporting by Sayan Chakraborty in Bengaluru.