Uncategorized Adani and Madoff January 30, 2023 John Quiggin21 Comments My thoughts on why the exposure of Adani’s dubious dealings came as no surprise Share this:TwitterFacebookLike this:Like Loading... Related
21 thoughts on “Adani and Madoff”
As you mention Hindenburg Research is short-selling Adani. As a corporate move Hindenberg’s claims are doubly effective as Adani was trying a large share issue. It is presumably doomed and that may be the last straw for Adani. Adani’s lengthy response to the allegations (below) have not stopped the rot so things don’t look good for Adani.
It is amazing to me that firms like Adani, owned by some of the richest people on the planet, risk everything by engaging in dubious behaviour. It doesn’t matter much if your wealth is $5b or $150b – you are still filthy rich. One explanation is that, like Magdoff’s Ponzi scheme, he has been a loser from the go. He couldn’t get off the merry-go-round of fate.
We have had our home-grown “heroes” too. I recall the merchant bank Rothwells in WA run by Laurie Connell, a mate of Alan Bond. . They announced large and growing profits for years. Post-bankruptcy the forensic accountants worked out that Rothwells had never turned a profit.
Civilization is drowning in a sea of human corruption and waste. In the past, natural sustainable regeneration of people and of renewable resources plus the large stock of non-renewable resources relative to human use rates, were sufficient to enable cyclical renewals and new instances of human civilization. This seems no longer the case.
In the short run there are things we could try. Litigation and shorting seem to aim to correct, recompense or rebalance re corruption, damage and false valuing after the fact. Regulation and compliance checks seem to aim to prevent these issues before the fact. More regulation and compliance would be my recommendation. Not exactly novel, I know.
I know it’s not relevant to the point actually being made, but I still feel that it would not have impaired the impact of the commentary to get the name of India’s Prime Minister right. Although lots of people won’t even notice, it’s the kind of thing that distracts the attention of some.
Of course, all that is and has long been publicly known about Adani has never deterred the Queensland State Labor Government from openly befriending him.
Bizarre that any political parties in Australia ever thought supporting Adani was sensible and wise. Remember the 4 Corners expose? The LibNatLab triopoly simply ignored it, as did most of Australia’s media, including, ironically, most of the ABC.
Since when does excluding known dodgy companies from Australia count as unreasonable anti-business green/left ideology? Let alone treating the clear and uniquivocal need to get out of coal and oil and gas for the sake of the climate.
Ken Fabian: – “Since when does excluding known dodgy companies from Australia count as unreasonable anti-business green/left ideology?”
I’d suggest, when it suits the pre-determined ideological narrative. And mentioning that good ol’ bloke called Jobson Grothe.
On 8 Aug 2021, Ian Dunlop & David Spratt wrote:
I’d suggest the new Labor Federal government is not much better. The 114 new coal and gas projects in the pipeline will blow the Labor government’s climate targets out of the water.
I went to tweeter and checked out how the Indian PM spelt his name: Narendra Modi
Seems OK and the bread’s nice too.
I won’t get into the thickets, but…
Among the reasons why firms and/or people get caught up in these big risky ventures (that then collapse) is in some ways so basic, we forget to account for it; these people reach for the stars, for they wish to make great conquest. It’s unlikely that they do this for some pure economic concern; it is a matter of ego, of feeling they had placed down the planks for the next generation (of their brethren)…
Cecil Rhodes encapsulated this in his grand tirade, stating that “To think of these stars that you see overhead at night, these vast worlds which we can never reach. I would annex the planets if I could; I often think of that. It makes me sad to see them so clear and yet so far.”
It is this singular perspective that the Uber-wealthy have, that makes them a menace to society. Society, after all, is 99.99\% not the Cecil Rhodes of the world. Rhodes captured the mode of thought of the imperialists of the day, and it was those imperialists who, with the full force of the British Army behind them, rampaged through another continent, plundering it asunder.
Rhodes was not a nice guy. His Rhodes scholarship in no manner diminishes the harm he caused.
I share Harry’s puzzlement over Adani’s sleaze. If you are a little rich, with say $20m in commercial property and second-hand car dealerships, it’s a reasonable risk to hide it from the taxman and the ex in a tax haven. You don’t stand out from the crowd, and the people who might investigate you have limited resources to spend on a not very rewarding target. You have a good chance of getting away with it. Great fortunes like Gautam Adani’s are different. They can’t really be concealed, just made more opaque. Your enemies are likely to include tireless and unscrupulous prosecutors, reporters, hired PIs, and vultures like Hindenburg, drawn to the scent of a great prize. Adani may be relying on his patron Modi for protection. This should work in India, but not in Singapore or Australia, and Modi is a very slippery customer who will ditch him if he needs to. As Harry asks, all to what end? Adani undoubtedly owns billions in real productive assets, it’s not a Ponzi scheme.
A the time of writing, the Adani enterprise seems to have survived the attack, but its shares have taken a very large ($70bn) hit. Hindenburg have recouped their investment many times over. My guess is that some of the damage is permanent. Investors and banks will be warier in future, and regulators more likely to dig into the paper trail. Maybe enough to sink Carmichael for good?
Update: Adani group shares continue to slide. The cumulative fall in share values is now up to $85 bn (1 February). In theory this could all just be other speculators piling in to short the stock. But absent data on this, it looks more likely that regular investors have dug deeper into Hindenburg’s allegations and Adani’s response – and they don’t like what they are seeing. The slide may well continue.
From a distance, the group has two structural problems on top of too much leverage. One is its almost Russian reliance on shady financial engineering using tax havens and shell companies to avoid taxes, as discussed above. For a major industrial group to rely so heavily on these ploys is to expose itself to a Hindenburg-type attack, using the opacity to develop a case that the target has overstepped the unclear line of legality into outright fraud. Even if the charges prove false, it suffers real reputational damage, much worse if there is any truth to them. The scheme is just too risky for comfort.
The other is that Adani is trying to have it both ways on the energy transition, investing heavily both in Indian solar farms and in its Australian coal mine. This is a poor strategy for survival. Solar will win and coal will die, in the next ten years. This holds of course also for oil companies like Total and BP that are also splitting their bets between renewables and fossil oil and gas. Adani’s best strategy could well be to abandon the coal mines and write off the accumulated losses. They may be too highly leveraged to pull this off without reorganisation under bankruptcy and new management. The next stage may be a panic of the bondholders.
James, anyone, what happens now in the game of capital & equity to Hindenburg short selling now Adani has abandoned offer?
“Adani Group abandons share offer as crisis triggered by fraud claims escalates”
KT2: Hindenburg presumably shorted a big packet of Adani stock before publishing their exposé. They are sitting on a large profit from the operation. This can’t be replicated, unless they are holding back on important additional accusations. Why should they split the depth charge in this way? Looking forward, they are now in the same position as any other speculator, reduced to guessing if the market slide will continue. Nobody knows anything.
“Looking forward, they are now in the same position as any other speculator, reduced to guessing if the market slide will continue.”
And therefore hoping to pick over Adani’s assets at a cheaper price and maintain and siphon profits.
Somebody knows something and it ends in ameliorated, not mitigated, BAU.
“And therefore hoping to pick over Adani’s assets at a cheaper price and maintain and siphon profits.”
Short to fund long.
“In May 2022, Hindenburg took a short position in Twitter, Inc. following the announcement of acquisition of Twitter by Elon Musk. After Musk’s attempted termination of the deal, Hindenburg took a significant long position in Twitter betting against Musk on the acquisition to close. ”
“Last Sane Man on Wall Street
“Nathan Anderson exposes — and bets against — corporate fraud. But short-selling a market this frothy can be ruinous.
“On a practical level, though, the rolling truck was the killer detail — the spark that incinerated a high-flying stock to the career-making benefit of Nathan Anderson, the proprietor of Hindenburg Research.
“Anderson belongs to a cranky cohort of “activist” short sellers.
Update 3 February
The fall in share value of the group has reached $115bn, over half its pre-Hindenburg $220 bn. Gautam Adani has been trying to reassure bondholders, see earlier comment. I suspect he will have to stand down, at least temporarily.
One wrinkle I’ve not seen covered in the Guardian but presumably in the minds of shareholders is that the different quoted subsidiaries are not equally exposed. The renewables, ports and airports in India are pretty safe businesses, though all the companies are cross-linked through group debt. I would expect the fall in share prices to vary: lower for the safe businesses, higher for the mines. Hindenburg and other bears will have concentrated their sales on the latter.
KT2: Any bankruptcy ends with the assets in the hands of new owners, they don’t vanish into thin air. But the new managers will be calculating bastards like Nathan Anderson, not megalomaniac dreamers like Gautam Adani. They won’t have any sentimental capital invested in his mistaken decisions. They are also very unlikely to have his political connections to fend off protestors. Would Anderson (or clone) throw new money at Carmichael?
KT2: “After Musk’s attempted termination of the deal, Hindenburg took a significant long position in Twitter betting against Musk on the acquisition to close.” I read this as Hindenburg’s betting , correctly, that Musk would be forced to follow through on his rash offer to buy Twitter at an inflated price, which he tried to back out of. He now owns Twitter, and is destroying it in a fit of libertarian hubris, quite possibly dragging down Tesla into the Twitterdämmerung. Somebody should write an opera, like “Nixon in China”. Anderson wears a long black cloak.
I’d appreciate a response from Ernestine (hope you are well) and JQ.
James, yes – “Somebody should write an opera, like “Nixon in China” with “Anderson wears a long black cloak.”.
And with Adani as Khrushchov from Boris Godunov Opera – “the boyar Khrushchov. The crowd taunts him, then bows in mock homage (“Not a falcon flying in the heavens”).
(Boyar: “a member of the old aristocracy in Russia, next in rank to a prince. ‘the rise of the boyar class'”. Wikipedia.
As the synopsis says ACT III in “Nixon in China” ends with “… Chou concludes the opera with the question of whether anything they did was good”.
“Nixon in China
Crepuscular Musk-ular Twit
Dämmerung Musk der Depp!
(Twighlight Musk Twit)
Or perhaps “Boyar’s All”
Adani seems to be in the too big to fail category.
JW “Any bankruptcy ends with the assets in the hands of new owners”.
Will bankruptcy be the outcome for the exposed assets? The Economist tells me Adani “warehouse 30% of its grain”, so Modi would be seen to have a food, as well as financial and political stake.
Bloomberg Law below, reported yesterday “Adani is in talks with creditors to prepay some loans backed by pledged shares” – which my ignorance tells me he is swapping equity for debt. Maybe I have this wrong.
JW: “The renewables, ports and airports in India are pretty safe businesses, though all the companies are cross-linked through group debt.”
Yes, I am amazed at the concentration / cross links of Adani re India’s markets.
A month before, as you appropriately called him “the calculating bastards like Nathan Anderson” released THE report;
“29 Dec 2022,
“The share of loans from Indian banks has reduced from 86% to 32% in the overall debt portfolio in the past nine years. “Almost 50% of our borrowing is through international bonds,” he said.” from “Adani says group financially strong, India’s GDP to add $1 trillion every 12-18 months” below.
… the Debt-to-Ebitda ratio to 3.2 from 7.6 in the same time period.”
The Economist tells me;
“The threat to the empire does not appear existential. Mr Adani is considered an able operator and his companies own many valuable assets. They run some of India’s biggest ports (plus a few in Australia, Israel and Sri Lanka), warehouse 30% of its grain, operate a fifth of its power-transmission lines, accommodate a quarter of its commercial air traffic, and produce perhaps a fifth of its cement. A Singaporean joint venture vies to be India’s largest food company. In the last financial year the group’s listed companies had total revenues of $25bn, equivalent to 0.7% of Indian gdp, and a net profit of $1.8bn. Their combined annual capital spending of around $5bn accounts for 7% of the total for India’s 500 biggest non-financial firms.”
“Adani in Talks to Prepay Share-Backed Loans to Lenders (1)
BY P R SANJAI
Feb. 3, 2023
“Embattled billionaire Gautam Adani is in talks with creditors to prepay some loans backed by pledged shares as he seeks to restore confidence in his sprawling conglomerate’s financial health.
“An Adani Group representative said Friday the company is in talks with creditors proactively, confirming an earlier Bloomberg News report. While the official didn’t elaborate further, the move would see lenders release some of the stock pledged as collateral and repayment could take place as early as this weekend, people with knowledge of the matter, asking not to be identified as the details are private.”
Dämmerung Musk & Adani der Depp! Opera
(Twighlight Musk Twit)
Adani’s step parents and bankers are fighting now. Act II. “Indian parliament adjourned amid Adani crisis
“Moody’s warned the share plunge could hit the Adani Group’s ability to raise capital, although fellow credit ratings agency Fitch saw no immediate impact on its ratings.”
ABC report with numbers on the recent share prices of the different Adani companies: https://www.abc.net.au/news/2023-02-04/indian-parliament-adjourned-amid-adani-crisis/101931080 . The prices have even been moving in different directions.
It does not explain why the Indian Parliament has been adjourned. Guess: Indian opposition politicians have started to call for inquiries, on top of those already started by regulators, a reasonable proposal on the face of it. Modi is trying to buy time for Gautam Adani to stabilise the situation in the markets and prepare his defences. He can’t stifle the investigations entirely.
“Modi is trying to buy time for Gautam Adani to stabilise the situation in the markets and prepare his defences.”
Perhaps the problem is now more Modi et al, than Adani / finance / externalities?