How much damage can a small investment company cause to one of the richest people on the planet and the entire economy of a rapidly developing country?

To answer the above question, we must look back at what happened on January 24, 2023, when luck suddenly ran out of favor with 60-year-old Indian tycoon Gautam Adani, Asia’s richest man and head of the Adani Group. companies.

Report that “burned” Adani

In just a few days, his empire lost more than $110 billion as shareholders began selling off his securities en masse. At the same time, Adani himself, who occupied the third place in the list of the richest people in the world, dropped to 21st place, losing at least $60 billion.

The reason was the publication of a report by a rather small American investment company, Hindenburg Research, which listed evidence of unfair practices in companies belonging to the Adani group.

Hindenburg accused the Adani group of widespread accounting fraud, long-term securities fraud, money laundering and many other crimes of a financial nature and beyond. He even called Adani himself “the biggest fraudster in the history of business.” As expected, this report caused such a chaotic reaction from investors, which brought down the group’s shares and Adani’s fortune sharply, as well as tightened the markets around the world.

As noted in his extensive report Bloomberg Businessweekthe 100-page Hindenburg report alleges, among other things, that people in Adani’s inner circle used a network of shady offshore companies to buy and sell shares in his businesses and raise their prices or fill them with capital to appear more reliable.

This whole affair seems to expose a certain weakness of global institutions https://t.co/EC2egUl6m9 via @BW

— Bloomberg (@business) February 9, 2023

So by making these companies more valuable, Adani’s group was able to attract more investment or get more loans, Hindenburg argues.

For its part, the Adani Group vehemently denied the above claims in a report that was four times as long as the Hindenburg report. To protect himself and his group, the 60-year-old magnate declared “an attack on India, on the independence, integrity and quality of Indian institutions.”

In response to the above, Hindenburg accused him of trying to cover up dark deeds under the banner of nationalism.

Omnipresent in the Indian economy

The impact of Adani’s case on the Indian market has been enormous, with the rupee falling against all Asian currencies and spreads on the country’s benchmark bonds widening to their highest level in four weeks. The investment banks that acted as underwriters for the offering were supposed to pay $12 million, which they lost, however, as their payment was contingent on the success of the offering.

According to Bloomberg, to fully understand how this affected the Indian economy, we need to understand the true role of the Adani empire.

The coal mined in Adani’s mines is transported through its ports and railways, and then delivered to the furnaces of the power plants it also owns. The electricity generated travels through transmission lines operated by Adani and reaches homes built with cement produced by his group, where people cook on Adani gas stoves with vegetable oil, grains and apples, which also bear the stamp of his companies. .

Later, as families sit down to eat, they can discuss their vacation with flights between airports that Adani owns again, or relax by looking at photos stored in his data center. No other person in modern Indian history has achieved such a strong presence in so many sectors of the economy and in such a short span of time.

“Sharp awakening” for foreign investors

Thus, given the key role of Adani, the crisis that erupted after the publication of the Hindenburg report could have long-term consequences for the Indian economy.

“Looking at the bigger picture of the markets, it’s clear that this was all…a wake-up call for foreign investors,” Saurab Mukherja, founder of Marcellus Investment Managers, told CNN.

Experts warn that the consequences of the Hindenburg report could affect other large Indian companies.

“The Adani case opened the Aeolus bag,” said Manish Chowdhury, head of research at brokerage Stoxbox. He added that India now looks like a “weak” option for foreign investors.

Chowdhury said investors would now be “skeptical” about the accounting practices of all Indian companies, while Mukherjee for his part noted that his clients were already asking more questions.

“Of course… they are asking us for more guidance on how accounting and corporate governance works in India,” he told CNN.

Political unrest and protests

The Hindenburg Report has also been the subject of political controversy in India, with opposition leaders disrupting parliament last Thursday and again on Friday, demanding an investigation into the case.

In particular, they called on a Joint Parliamentary Committee or a committee under the supervision of the Supreme Court to investigate the allegations against Adani’s group and assess the risk to Indian investors from the fall in its shares.

In addition, the crisis escalated further this week as hundreds of members of India’s opposition parties took to the streets demanding an investigation into Hindenburg’s allegations.

Hundreds of representatives of India’s main opposition party took to the streets to protest the way regulators handle the collapse of the Adani Group. The Indians shout slogans and break through the barricades. Let’s take a look:pic.twitter.com/NAC3D8ZuBF

— Steve Hanke (@steve_hanke) February 7, 2023

It is noted that in both the financial capital of Mumbai and in the city of Chennai, opposition protesters gathered outside the offices of the state-owned bank, as well as the country’s largest insurance company, which is known to have invested in shares of the Adani Group.

Protests also erupted in Delhi, where protesters threw fake notes into the air and shouted slogans. Some even burned a suitcase containing photographs of Prime Minister Narendra Modi and Adani, and some crossed the police barricades and were arrested.

WATCH: India’s main opposition party is holding protests in New Delhi to draw attention to what they say are close ties between Gautam Adani and Prime Minister Narendra Modi following Hindenburg’s allegations of major accounting fraud at the tycoon’s firms https://t. co/iI5fJvGEfW pic.twitter.com/JcPOsJEQDf

— Bloomberg Politics (@bpolitics) February 7, 2023

Adani’s friendship with the Prime Minister of India

Adani’s path to the top of the Asian business scene was fraught with risk, even risking his own life. At 16, he left school and moved to Mumbai where he worked in the diamond industry, but returned to his home state of Gujarat two years later. There, together with his brother, he headed a packaging factory.

In 1998, he left his textile trading family to start his own company. For 24 years, he has continuously worked to expand its activities in virtually all business sectors, from ports and mining to energy and real estate.

The 60-year-old tycoon is one of Modi’s biggest party sponsors. In fact, the Prime Minister of India never made a secret of his friendship with Adani, who certainly used it to expand his empire.

Adani became Asia’s richest man just a year ago, in February 2022, when the value of Adani’s group also skyrocketed. He has now fallen to second place behind Mukesh Ambani, founder of Indian multinational giant Reliance Industries.

Two attacks

It is also noted that in an interview with the Financial Times in 2013, Adani stated that among “two or three very sad events” in his life was the kidnapping of him and his accomplice in January 1998. The criminals took them from the car. , threatening them with a gun, demanded a ransom of $1.5 million and let them go. The two suspects were released in 2018 because Adani and his accomplice “never showed up to testify despite repeated subpoenas.”

A decade later, the tycoon managed to avoid a terrorist attack by the Lashkar-e-Taiba organization from Pakistan, despite the fact that he was in a hotel where 166 people died. Adani was in a meeting when he was informed that the hotel had been attacked and the staff took him and other customers to the basement.

Uncertain future

Therefore, in the context of the political and economic crisis provoked in India by the Hindenburg report, the future for the “sinful” Adani group is foggy, and “vibrations” are felt inside the Modi government due to its links with the 60s. year old tycoon.

At the same time, it remains doubtful whether the 60-year-old company’s business will be able to handle the blow, as credit rating agency Moody’s estimates the group will no longer be able to raise capital.