As the Hindenburg-Adani saga heats up, both the parties have resorted to allegations and counter-allegations. After Adani Group published a 413-page response to Hindenburg’s allegations on Sunday, the US-based short-seller was quick to retort on Monday, pointing out apparent gaps in Adani’s response, even before the markets opened for trading for the day.
In response to a question from Hindenburg, seeking transparency on the relation between Adani Group and a Chinese national named Chang Chung-Ling, the conglomerate did not shed much light. In fact, Chung-Ling's name is mentioned four times in the Hindenburg allegations whereas it does not find any mention in Adani’s long response.
Hindenburg has flagged this omission as an important matter that concerns Adani group’s shareholders as well as India’s national interests. At this juncture, a closer look at Hindenburg’s allegations around Chung-Ling's association with Adani Group is well-warranted.
In the original Hindenburg report that accused Adani Group of fraud and market manipulation, published on January 24, Chang Chung-Ling is first mentioned in relation to an entity called Gudami International where he served as a director. According to the research firm, Gudami is a related party of Adani Enterprises, as disclosed in a company filing from 2002.
Gudami was in Indian news in 2018 when it was named as one of the three Singaporean firms suspected to have been involved in the AgustaWestland VVIP helicopter scam. Notably, Gudami is invested in several funds under Monterosa Investment Holdings that collectively own stakes in multiple Adani entities worth $4.5 billion.
Chung-Ling has served as the director of multiple Adani firms, claims Hindenburg, based on adjudication order issued in a Directorate of Revenue Intelligence (DRI) case. The same DRI records reveal that Chung-Ling has shared the same residential address with Vinod Shantilal Shah a.k.a Vinod Adani, brother of Gautam Adani. Adani Group refrained from commenting on the relation between Vinod Adani and Chung-Ling.
The next instance where Chung-Ling is mentioned in the Hindenburg report is in relation to Growmore Trade and Investment, that merged with Adani Power in 2011 making a profit of $423 million. The report shows, with the help of court records, that Growmore is helmed by Chung-Ling and that this is somehow indicative of ‘windfall gain to an opaque private entity controlled by a close associate of the Adani family’. However, Adani Group dismissed such allegations by pointing out that the merger followed all due process and that it was cleared by Indian regulators.
Out of the 88 questions Hindenburg asked Adani group, at least three of them are to do with PMC Projects, a private contractor. By mentioning the payments made by Adani companies to PMC and making use of DRI reports from 2014, the short-seller sought clarification on whether PMC Projects is a dummy firm affiliated to the Adani Group.
Interestingly, Chang Chung-Ling's son owns PMC Projects, according to the US research firm. He’s allegedly an Adani Group’s Taiwan representative as well, as per media reports from Taiwan. The report also included a photo of him holding an ‘Adani’ sign at a government event. Although this link sounds suspicious, in the response filed yesterday, Adani refuted any links between PMC and the group by citing DRI records from 2017. This was further corroborated by a tribunal body and the income tax authorities in India.
In the Hindenburg response from Monday morning, it is clear that the research firm has doubled down on its take. The short-seller concluded that Adani’s response largely confirmed their findings and that it ignored some key questions that were raised. Naturally, Adani Group’s refusal to talk about Chung-Ling's relation with the conglomerate will be viewed by the short-seller as avoidance of a troubling question.
Although Adani clubbed many of Hindenburg’s questions and deflected them using the clean chits they received from authorities over the years, it is evident from Monday’s market response that investors are not fully convinced. Most Adani companies ended in the red, and Adani Enterprises’ share sale was subscribed only 3 per cent at the end of its second day.