Ballooning of the Adanis (under Modi Raj): An informed comment

[Sukla Sen]

Crony capitalism in its most extreme form.

A model illustration of how state power can cherry-pick and, thereafter, make a business house just grow and grow and grow.

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Remember this famous picture from 2014 showing Modi using Gautam Adani’s private jet as he campaigns in the Lok Sabha election?  And remember all the tall promises that followed about bringing black money back to India? Overblown rhetoric has always been a central part of Modi’s style of leadership, but nowhere has the gap between rhetoric and reality been starker or more stupendously laid out than with the deliberate blind eye he has turned to the iceberg of corporate malfeasance his friend Adani has piled up over the past 3 decades. If there’s one enterprise in contemporary India that embodies ‘monopoly capitalism’ in its purest form, it is Gautam Adani’s drive to dominate the infrastructure sector by monopolizing large parts of it (coal, ports, airports, even energy). But Adani’s aggressive expansion over the last ten years has been built not just on the leverage afforded by his proximity to Modi but on massive borrowings, extensive use of related party transactions, a network of shell companies basking in far-away and not so far away islands, and Gautambhai’s unbelievable chutzpah.    

As M.Rajshekhar pointed out in a series of articles two years back, unlike the Ambanis and Tatas, the Adani Group singularly lacks a cash cow, that is, a company that is both profitable and a major contributor to the group’s revenues. (The pre-tax profits of the most successful Adani firm, Adani Ports, is a mere fraction of the profits of Reliance Industries and TCS.) Instead, the Adanis are ‘one of the most indebted business conglomerates in India’. On one calculation, the borrowings of the six listed companies total just short of 100,000 crores, yielding a debt service burden of at least 8,000 crores (just over $1 billion) every year.  And as one banker told Rajshekhar, ‘When even the equity is money borrowed from banks, the promoters have no skin in the game’.

So we have a rapidly expanding conglomerate with weak cash flows that funds its growth not through internal accruals but through debt and more recently through recourse to the global bond markets. The most interesting part of its financing pattern, however, is the presence of shadowy offshore entities such as the three Mauritius funds whose demat accounts were very recently frozen by the National Stock Exchange (NSE).  When that happened in the middle of June over 100,000 crores of Adani market cap evaporated in just three trading sessions, showing how jittery investors are about the involvement of entities which they have no means of tracking. As it turns out, at least 2 of the three Mauritius funds which are said to hold over 90% of their assets in Adani group companies had already been shown in one article from July 2018 to be sub-accounts of a Swiss account held by bank scamster/economic fugitive Nitin Sandesara. As Mohan Guruswamy  has pointed out elsewhere on fb, ‘Sandesara, like Adani, rose in Gujarat during the Modi period’.

Fathom this: In the half year that saw India’s most devastating health crisis ever, with over one million dying through lack of preparation and countless numbers of families pushed into absolute poverty, a sudden surge in three Adani stocks saw a whopping $43 billion added to Gautam Adani’s wealth!  If you want to know how, you have to ask the regulators to find out what’s going on between him and those Sandesara funds.  

Mauritius is not alone, of course. An investigation by the Australian Broadcasting Corporation revealed Adani’s Australian operations (the Carmichael coal mine project) to have ‘previously unknown tax haven ties in the British Virgin Islands’. Here the crucial figure is Gautam’s older brother Vinod Adani. When his name cropped up in the Panama Papers and this caused a splash in the Indian financial press, Adani top management took the almost comic position of saying , ‘Why drag me in brother’s business? says Gautam Adani’. ‘The reported account holder Mr Vinod Adani…has his own established business interests outside India’. What, with *no* connections with the Adani Group?  Vinod, for example, was listed as sole director of a Singapore company Global Renewable Energy Holding incorporated as recently as January 2017. In a piece on Gautam Adani’s Australian solar projects, Joshua Robertson told readers: ‘Singapore company filings show Global Renewable Energy Holding Pte Ltd is owned by Atulya Resources Ltd in the Cayman Islands. Atulya Resources is in turn owned by ARFT Holding Ltd in the British Virgin Islands. Documents held by the Singapore corporate regulator disclose that “the Adani Family” is an ultimate shareholder of ARFT Holding Ltd.’.  That certainly doesn’t suggest that the older brother is irrelevant to Gautam’s recent business operations. Again, when India’s Directorate of Revenue Intelligence was able to show back in 2014 that the Adanis were using a shell company in Dubai to siphon hundreds of millions of dollars from the company’s books into Adani family tax havens overseas by over-invoicing purchases of power equipment for their Maharashtra electricity project from Chinese and South Korean vendors and routing the extra money to the Mauritius account of one Electrogen Infra Holding Private Ltd. (EIF), it cited a letter from EIF to its bankers dated 26/04/12 proving that ‘Shri Vinod Shantilal Adani had a direct control over the activities of EIF through Asankhya Resources Family Trust (ARFT)’.  

As the Guardian’s South Asia correspondent Michael Safi noted at the time, the equipment bought from Hyundai Heavy Industries involved an average mark-up (invoice inflation) of 400% and that bought from three Chinese companies 860%!  There is a Gujarati saying, ‘Empty vessels make the loudest noise’. That would be an apt description of all the bluster about black money that has come from Modi over the years.