Anand
When the toiling masses the entire world were facing untold miseries during last couple of years of Covid pandemic, a handful of billionaires were in jubilant mood as their wealth kept soaring during this global disaster. This happens during all crises. The bigger capitalists swallow smaller ones, speculation reigns supreme. Indian business tycoon, Gautam Adani, who heads a gigantic global business conglomerate was in the leading rows among such moneybags as his fortune rose at much faster speed than even the Elon Musks and Jeff Bezos of the world. Some of Adani Group companies saw their shares rise over thousand percent in the last five years. This new year began on a positive note for Adani as he became the richest person in Asia and the second richest person in the world. After gaining controlling stake in NDTV he had already announced his triumphant entry into the media business as well. It seemed like there was no looking back for him.
However, on 24 February a bombshell was dropped on Adani Group when Hindenburg Research, a New York-based ‘activist short seller’, made its report public in which it revealed that behind the meteoric rise of his fortunes lies large-scale share price manipulation and accounting fraud, money laundering and various other kinds of malfeasance over the course of decades. It termed it as the largest con in corporate history. Thus, the great French novelist Balzac’s dictum that behind every great fortune is an equally great crime found yet another evidence in its support in the 21st century.
Such kinds of allegations had been made against Adani Group by several journalists and activists in the past as well. However, earlier the Group managed to escape widespread public scrutiny by taking resort to defamation cases. But this time it was different since Adani Group could not gag an international institution and also because the publication of the report was followed by a bloodbath in the Indian stock market leading to nosediving of the shares of Adani Group companies to the extent of more than 40 percent due to which the issue came under the spotlight of international media. The fact that the lenders of Adani Group include several international financial institutions also contributed to Adani’s woes as global investors began to lose their faith in his conglomerate.
What is Hindenburg Research and What its Report has Revealed?
The Hindenburg Research is a New York based ‘activist short seller’ which makes money by exposing the corporate frauds. Interestingly, exposing fraud has also become a profitable venture in capitalism. In order to expose a fraud Hindenburg identifies a company whose shares are suspected to have been overvalued due to certain malpractices. It carries out extensive research on such a company and before publishing the report of its investigation it borrows certain amount of shares of the company and sells in the market at the high price in the hope that the revelations made in the report would lead to drastic fall in the share prices which will give it an opportunity to buy the shares back at a lower value and thus it makes profit. However, in the process, it does reveal the parasitic and predatory nature of capitalism today.
In case of Adani Group, Hindenburg carried out a 2-year long research before publishing its report. In its 106-page report it revealed with ample evidence that the basis of Adani’s business empire is brazen stock manipulation, accounting fraud, money laundering through tax havens and different kinds of malfeasance over the course of decades. The report explains in detail how Gautam Adani has been making use of scores of offshore shell companies in tax havens such as Mauritius, the UAE, and Caribbean Islands which are managed by his elder brother Vinod Adani and his family members to siphon money from Adani Group companies and trusts. The report provides evidence that these companies exist only on paper. The money invested in these companies are reinvested back into Indian stock market to purchase the shares of Adani group causing artificially high demand leading to high prices of these shares. In this process not only, it is ensured that Adani shares are overvalued, an important rule of share market regulator SEBI is also violated which stipulates that the promoters’ shares shall not exceed 75 percent in a listed company. It is to be noted that in 5 out of 7 companies of Adani Group the promoters share borders on the upper limit of 75 percent. And the circular investment of Adani family’s money into the shares of their own companies clearly breaches this rule.
This fraud led to artificial surge in the shares of Adani Group companies over the course of years and gave a misleading picture about the financial health of these companies. This overvalued share prices coupled with Adani’s high-profile political connection with our own Modi ji (!) ensured that he managed to borrow enormous amount of money not just from within the country but from the international banks and financial institutions as well. It is estimated that the total debt of Adani Group amounts to 2 trillion rupees. The report also brings out the fact the Group has borrowed so much money that there is a real threat of insolvency which spells danger for creditors and public. 5 out seven Group listed companies—Adani Enterprises, Adani Power, Adani Total Gas, Adani Green Energy and Adani Transmissions—are in danger zone as they have carried out disproportionate borrowing as compared to their real assets.
The most appalling aspect of this entire scandal is the fact that despite the suspicion of overvaluation in Adani Group shares it continued to receive loans from Pubic sector banks such as SBI, Punjab National Bank and Bank of Baroda. Apparently, the loans issued by these PSU banks is double the amount of loans given by the private sector banks. SBI alone has lent 21,000 crores of rupees to the Adani group companies. Besides, LIC, the leading insurer of the country too has invested more than 80,000 crores of rupees in buying Adani Group shares. Clearly such reckless lending and investment by the Public Sector firms could not have been possible without the direction of Modi government. After all several private sector banks and mutual funds did not show much interest in Adani’s shares as it was believed that it was risky affair It is a typical case of how people’s hard-earned money in banks and institutions like LIC is being handed over to the corporates and that too without any sound business logic.
The Fall Out of Hindenburg Report
In line with the assessment of the Hindenburg research, the shares of Adani Group companies tanked after the publication of the report. By the time of writing this article, Adani’s personal net worth tanked from $120 billion to less than $50 billion. Adani Group has already lost more than $120 billion worth of market value in the aftermath of Hindenburg exposé. This bloodbath in the share market has shaken the confidence of the investors and analysts. Already two leading global banks, Credit Suisse and Citigroup have stopped accepting Adani bonds as collateral. Other banks and financial institutions may follow suit. Credit rating companies have also started downgrading the ratings of Adani Group. The international contracts of Adani Group in countries like France, Australia and Bangladesh in the sectors of mining, ports and power are coming under scrutiny. All this is bound to have an impact on Adani’s capacity to raise funds in future. In the absence of cash-flow, a real threat of insolvency looms large over Adani Group.
In order to salvage its prestige Adani Group issued a 413 page reply in which it denied the allegations as baseless and termed it as an instance of attack on India! It also threatened to file a case against Hindenburg Research which was welcomed by the latter as it would help it to get more facts and to expose the conglomerate even more. Adani group’s response failed to assuage the market sentiments as the free fall of Adani Group shares continued for days. The publishing of the Hindenburg report also coincided with Adani’s plan to issue its Follow-on Public Offer (FPO). Gauging the market sentiments Adani finally had to cancel the FPO and return money back to the investors.
What Does This Scandal Reveal About the Nature of Capitalism Today?
This entire saga gives a glimpse of how capitalism is working in 21st century especially in a backward capitalist country like India and how the shoddy international finance capital of tax havens is linked with the formal capitalist economy. It also reveals how the crimes of the capitalists are overlooked not just by the Hindutva fascists who are currently at the helm of Indian state but also by the governments of other bourgeois parties. The report clearly states that the history of illegality of Adani Group spans across decades. In all these years Adani Group continued to flourish in different parts of the country and no government dared to take any action against him.
Needless to say, Adani’s close connection with the Hindutva fascists and his friendship with the fascist supreme leader is primarily responsible for his meteoric rise in the capitalist landscape of India. His close ties with the Prime Minister of the country, Narendra Modi, has been instrumental in providing him the mining, power, energy and infrastructure contracts not just within the country but in abroad as well. This becomes specially alarming when we take into account the fact that during the last decade Indian economy has been suffering from the crisis of profitability and there has been a continuous fall in private investment across sectors. Before becoming Prime Minister Modi used to travel in Adani’s private jet. After Modi became Prime Minister Adani has been occupying the front row among the businessmen accompanying Modi’s official foreign trips.
Modi government is notorious for ordering ED, CBI and Income Tax raids on its opponents even on flimsy grounds, but no such raids or investigations were launched by these agencies against Adani Group despite the fact that Adani’s malpractices were in public domain for several years. The stock market regulator SEBI also remained a mute spectator for all these years despite the fact that it was well-known among the stock market players that Adani shares are overvalued.
This scandal also exposes the reality of the India’s so-called growth story in the neoliberal era. It needs to be recalled that the cheerleaders of neoliberalism used to shower heavy praises of the so-called ‘Gujarat Model’ when Modi was the Chief Minister of the state. This ‘Gujarat model’ was presented as a blueprint to be followed by the entire country. And it was indeed replicated at an all-India level after Modi became PM in 2014. Central to the Gujarat model was Modi’s ‘magnanimous’ attitude towards big business and his close friendship with Adani germinated during that time only. This relationship blossomed when Modi became PM resulting into unprecedented expansion of Adani’s business empire not just in different parts of India but in abroad as well. He was awarded coal mining contract in Australia and power contract in countries like Bangladesh and Sri Lanka.
A peculiar characteristic about Adani’s business empire is his over-reliance on debt which has been made possible by the overvaluation of his stocks as well by his close political ties. It is to be recalled that Adani group was one among the ten corporates who were found the main culprit for the bad debt of state banks way back in 2012. Curiously out of these 10 corporates, 7 have already collapsed which include erstwhile giants such as Anil Ambani’s Reliance ADA Group, Essar Group, Videocon Group and Jaypee Group. Adani has survived so far because he continued to receive newer contracts and this coupled with the fact that his shares were overvalued for years ensured that he could continue to find lenders not just from within the country but from several foreign banks and financial institutions. However, after Hindenburg bombshell Adani group also faces the risk of meltdown.
Ideally, such a huge scandal involving no less than the Prime Minister of the country should have caused enormous outrage in the society. However, similar to what happened during the Rafael scam, the lacklustre state of the opposition parties ensured that the fascists managed to escape accountability of their crimes this time as well. They could not spread a simple awareness that Modi government which was formed on the basis of the promise of eradicating corruption and black money is actually doing exactly the opposite as it is engaged in rampant corruption. After some drama of protest for a couple of days the parliament was allowed to function normally and Modi managed to conveniently skirt the Adani issue in his speech in parliament. The opposition parties did not have any clue as to what to do beyond some lip service for Joint Parliamentary Committee probe. The complete control over the mainstream media also contributed in ensuring that most people could not visualise the enormity of the scandal. On the contrary the fascists are spreading the narrative that it is an attack on India by some foreigners as they are envious of India’s growth story. In the most hilarious manner, they even brought George Soros into a picture to fabricate a conspiracy theory that it is an ‘imperialist’ ad ‘colonial’ attack on India’s growth story!
Many analysts have termed this scandal as yet another instance of ‘crony capitalism’. They emphasise on the need for greater regulation over the financial markets and more transparency in the corporate governance. However, such an analysis help in shielding the capitalist system as such from criticism. Thus, instead of targeting capitalism they target cronyism and thereby create an illusion that an ideal and pure form of capitalism can exist and we should strive for such kind of capitalism instead of working towards an alternative to capitalism. The fact is that what we are witnessing in the form of such financial scandals is not an aberration from capitalism, but part of the rule of capitalism in the era of moribund, rotting and dying capitalism, in other words, imperialism.
The history of capitalism across the world bears ample testimonies to the fact that cronyism is inherent in capitalism and a pure and innocent form of capitalism exist only in the imaginations of its defenders. A system based on the mindless plunder of natural resources and ever-increasing exploitation of toiling masses in the pursuit of maximisation of profit can only innovate newer and newer ways of plunder. This plunder is embedded in the very structure of capitalist system. It assumes different forms during different stages of capitalist accumulation. To begin with the capitalists are allotted land and other natural resources at throw away prices. Through banks and financial markets the capitalist raise capital which is used to buy machinery, technology and labour power. During the production process the surplus value created by the workers is appropriated by the capitalists which forms the core of the capitalist plunder. Besides the capitalists are helped by their managing committee, viz. governments by way of various kinds of tax exemptions and other policies. But all these forms of plunder fail to satisfy the ever-growing lust for profit. Moreover, the secular tendency of fall in the average rate of profit causes cyclical crises during which the capitalists tend to invest in financial speculation for quick profits, rather than productive sectors. In the period of current long depression, this is has emerged as a general tendency. Hence, they brazenly break their own ‘rules of the game’ and start engaging in all kinds of manipulation, fraud and money laundering activities as exposed in the Hindenburg Adani scandal. Therefore, what has been revealed by the Hindenburg report is only a tip of the huge iceberg of capitalist plunder. Such a scandal must be an opportunity not just to expose the tip of this iceberg of the plunder but also the entire iceberg itself. Only then we will be able to build an alternative of capitalism.
