Thread by @NavroopSingh_

#AdaniGroup #hindenburgresearch

📍Hindenburg says Adani Group companies have shell companies in Mauritius managed by brother of Gautam Adani i.e. Vinod Adani who pumps in money & manupilates stock market prices

📍Shareholding of many Adani Group shows many of these companies listed as FIIs registered in Mauritius. MSCI index has already sought explanation from Adani Group on these disclosures. The same can be checked on Screener.

📍Adani Group Companies have high promoter holdings & in many companies these holdings are pledged. There is hardly any free float of shares and thus stocks are managed like rigged casinos.

📍Balance sheet of Adani Group is deeply leveraged. It has nearly 2.2 lakh crore of loans from which has gone up from 1 Lakh crore in 1 year. CLSA Figures !

📍Adani Group lendings - 29% US $ lendings in Bonds (54.6 K crores), 25% PSU banks in India (47.1 K crores), 8% Private banks in India (15.1 K crores), 8% Rupee Bonds (15.1 K crores), 18% Global Banks (33.9 K crores), 6% DII (11.3 K crores) & 6% PSU Capex LC (11.3K).

📍Majority of Adani Group companies are having negative free cash flows for last 7 years specially Adani Enterprises, Adani Green Energy, Adani Transmission, Adani Total Gas barring Adani Ports & SEZ & Adani Power which have positive cash flow and some real assets.

📍Since Adani Group companies have negative cash flow owing to huge Capex investments in infrastructure sector it needs more capital to serve its current liabilities which can not be served through Fixed assets like Ports, Airports & other Real assets the group may have.

Now to serve the current liabilities including loans, interest on loans and further capex like in Green Hydrogen (ANIL under AEL) it needs further loans and borrowings. Which is why its debt has gone up from 1 lakh crore to 2.2 lakh crores.

Now serving interests becomes even more difficult it sought to raise more capital through debts where foreign institutions were hesitant due to Over leveraged balance sheets. Credit sight (FITCH) and S&P Global report red flagged this debt issues in Adani Group companies in 2022.

Now since Adani Group is over leveraged having less free cash flows the liquidity ratio in most of the Group companies is below 1. The debt equity ratio is high in most group companies and interest coverage ratios lower.

📍Adani Group had to seek loans domestically and internationally to cover interest, more capex requirements. Thus Adani Group planned this FPO raising equity for 20,000 crores to deleverage some of its debt of the balance sheets.

📍A day before FPO was supposed to open, Hindenburg research a hedgefund in USA came up with a massive report on how Adani Group does round tripping of money, money laundering through shell companies in Tax Havens like Mauritius, British Virgin Island etc,

accounting frauds, over valuations of imports etc with documentary proof. Some of this was documented by Australian Media ABC news in 2017 & 2018.

📍Hindenburg Research openly proclaimed to be a short seller & accepted in shorting Adani US $ bonds in America and Hong Kong and causing further issues to Group.

📍Hindenburg Short selling in US, along with short selling by Bear cartels & FIIs in India on Adani Group caused panic and made even Retail investors dump Adani Group stocks leading to loss of Market Capital of 5 Lakh Crores to Adani Group as a whole.

📍The allegations in Hindenburg Research are relatively known and serious to merit an investigation by SEBI the regulator and other agencies. But will an independent audit happen to restore confidence of investors is not known.

📍Adani Group FPO has been partially subscribed till now of only 45% i.e. 5000 crores by Anchor Investors (25 %), 3200 crores ICH from Emirates as FII (16%) and 600 crore by Retail investor which is 4%.

📍Tomorrow is last day for Adani Enterprises FPO and 90% threshold is not reached it will be declared unsuccessful. The FPO price is 3200 way below 2900 which is leading to low retail participation amid Hindenburg allegations.

📍Adani Group needs money, capital infusion to de-leverage its balance sheet somewhat & get its capex going. The US Bonds are being shorted and lending from foreign lenders become even more difficult. So its a precarious situation despite having assets like ports, airports etc.

📍Assuming even if Adani FPO succeeds one the kind of hit the group has take will take sometime to gather steam again. It is very likely that many Adani stocks would go in a long consolidation mode till their valuations cool off.

📍Ultimately the whole saga comes to Free Cash Flows, De-leveraging of balance sheet & crazy valuations when companies aren’t generating those profits to cover interest & its liquidity ratios are below 1 signifying less liquidity with companies to pay of debt/interests.

📍This is the whole saga in short of Adani Group. Just to add PSU Banks & LIC are exposed to Adani Group but the proportion of total lendings does not provide a systematic risk to India banking system or policy holders of LIC.

Disclaimer: This is my analysis of the Hindenburg Saga with Adani Group for educational purpose and not a recommendation. please do your own research before investing at your own risk/reward. I am also not invested in any Adani Group Company, nor hold any long or short positions.

Post Script:

Debt leveraging is common in Infrastructure companies even Reliance, L&T had debts to undertake. With leveraging you can not grow from small to big but once you grow big that is when you have to deleverage its balance sheet and turn profitable with free cash flows.

Adani Group is in process of deleveraging its balance sheet. FPO is a step in that direction. How soon the group turns profitable & generates free cash flows to cover loans, interests & current liabilities remains to be seen over time.

However high valuations, hight debt, less free cash flows basically financials are the reason i have stayed away from investing in the group. Others who are risk takers can do their own research and plan their investments accordingly. END.

Also to add it made recent Aquisitions in Cement & other sector like Ambuja, ACC, DB Power. Its acquisition of Holcim was funded by banks & foreign institutions in UAE. Probably reflects their participation in Adani Enterprises FPO as well.

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