Demerger of Adani Enterprises

Adani Enterprise ltd., a holding company, has decided to demerge its power, Transmission and ports businesses. Transmission business will be listed as a public entity post the demerger. The articles on the same has been available in the below links,

Now coming straightto the point,

As per the last article above, the approved ratios are like,

Pre DeMerger

AEL - 1 @ 629 (Latest closing price)

Post Demerger

AEL - 1 (Not known)

APorts - 1.4123 (Assuming current price 340) = 480

APower - 1.8596 (Assuming current price 52) = 97

ATL - 1 (not known)

Out of the total of INR 629, INR 576 is the worth of Aports and APower, according to the current valuation.

AEL, being a holding company would certainly have a holding company discount applicable to its valuation. Holding company discounts are of 3 types, due to lack of control, lack of marketability and liquidation discount. MArketability and control are present with this company, hence the discount factor from these two factors can be safely assumed to be negligible. Liquidation is the process which is happening, hence whatever discount which it would have, would dissipate now.

Most holding companies are having a discount of 20-50% from the market value, i for the conservatism, chose, 20%. ( AEL has risen 14% already in the past 2 days, leaving room for a possible 6% increase). So one who would like to enter now can possibly expect 6% increase from the current levels, ie., to 667.

At 667, the businesses of AEL and ATransmission are worth 90 Rupees per share. (One needs to be confidently sure that the business of AEL and ATransmission to be higher than 50(629-576=53)rupees for any meaningful profit. I am currently in the process of valuating this worth of AEL’s Coal mining, trading and Transmission business)

Are there any arbitrages in this transaction? My answer is, possible.

  1. The holding company discount will hold the validity of my calculations. If the holding company discounts are higher than 20%, the potential for rise in share prices are higher.

  2. ATransmissions, a non listed entity which would get listed. Generally, a private business is worth less than a publicly listed, due to its lack of marketability. hence, i expect the business valuation to be better than what its worth would be in future.

Let me get back to you all with further updates.

Residual value of both Adani Enterprises and Adani Transmission would be minimum Rs 200/-. Adani Enterprises will be left with Agro division, Coal Trading, coal mining and other businesses.Looks a safe bet at 629/- for an upside of Rs.100/- immediately.

Yes Manish, Only concern would be with regards to the timeline of completion of the deal. Realization of values for short term is promising.

If i look at the long term perspective,

I was going through the Adani’s Coal mining business, my simple calculation is SBI provided a loan of $1 Bn for this project. They would have had a margin of safety in assuming the business worth using Interest Coverage and all. Leaving aside all these, if i take, the project of Coal mining which is to be sanctioned in future, is atleast $1 bn ( 6000 Cr INR), that looks still attractive. And, adding up to this, there are many coal mining projects which Adani has acquired in the past and activities in progress on these mines, which would be valued at almost $10bn as per the report below.

But there have been so much concerns rising in the article over the AEL’s Bet on australian coal mines.

  1. Environmental

  2. Global Coal prices

  3. Coal India’s Production ramp up plans - This will make it unnecessary to import from Australia

  4. Australian political scenarios - The project is expected to be complete by 2022. Until then the scenarios would change.

The inherent risks are quite high. Discount rate applicable for the business would become higher. In such a situation, looking for a long term would just be a gamble.

An awesome article on the demerger of Renewale Business of Adani seems to be aimed at simplyfying the business structure.

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The Ken published a story on Adani Enterprises’ FPO today. It’s a paywalled story, hence sharing the main talking points here:

  • The further public offering announced by Adani Enterprises is a well-timed, strategic move with the stock price at record highs
  • With the fresh equity issue, the company would hope to reduce its high leverage and increase public shareholding to silence critics
  • But new investors could baulk at the sky-high valuation of the stock, driven by the huge rally in the past two-and-a-half years
  • Adani Enterprises choosing the FPO route over a rights issue or a qualified institutional placement raises some tricky questions
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My easy-to-understand write-up on the Adani fiasco

If you’re a company that’s accused of fraud, it’s usually bad for your company’s investors. Depending on the size of the fraud, you’d be fined a lot of money and it’s ultimately your investors who would pay. On the other hand, if you’re a company that’s accused of fraud, and one of those accusations is of being on the receiving end of government “leniency”, it’s usually good for your investors. If the government is friends with your company, your investors will actually make more money and be very happy.

Of course, if you’re a nefarious company constantly being accused of fraud, sometimes you might just defraud your own investors. This is obviously bad for your investors, because you’d be stealing from them.

My larger point is that an accusation of fraud—by itself—isn’t enough for investors to think less of your company. If you’re defrauding the government, banks, your customers, or the public at large, that’s fine! But if you’re defrauding your investors, that’s a problem.

Ten days ago, the narrative around Adani Group was that they’re doing well because the government likes them. Banks kept giving them money, the government kept giving them contracts, etc. etc. and that was good for business. Adani is “close to Modi” foreign publications would write—and that’s good for business!

Last week, though, Hindenburg Research, an American short-selling firm, accused the Adani Group of not just defrauding the government, banks, etc. but also its investors. I’d alluded to this when I wrote about why Adani stocks only go up:

One way to bypass all of the regulator’s BS is to just pay someone else to buy up your shares and hold on to them. You would then own about 75% of the company, ~20% would be with the entity that you paid, and the remaining 5% is what would actually be traded on the markets.

This is not a liquid stock. You might be the largest marble manufacturer in the world, and marbles might be the next hot obsession of crypto bros who would be minting NFTs on your marbles, and you might have billions in revenue, but a stock which has only a small number of shares that can be traded on the market is not liquid. There will be situations where the buyers have to “convince” the sellers to sell, pushing the price up significantly every time. Over time, these pushes and nudges can amount to a lot and might even make you the (second) richest person on the planet.

Entirely coincidentally, India’s gem Gautam Adani recently became the second richest person in the world, and a lot of his companies have very few shares trading on the market.

If you own most of the shares of your company, you’re artificially increasing its demand and consequently its price. You’re defrauding your investors by falsely inflating the price of your stock. [1] In Adani’s case, I implied that the Mauritius-based funds that owned large parts of his companies’ stock were likely controlled by him. Well, Hindenburg gathered a bit of evidence [2] by speaking to former employees of one of the Mauritius-based funds who confirmed the whole thing:

The former trader said it was obvious Elara’s India Opportunities and Vespera funds belonged to the Adani Group, citing the ownership concentration:

“The answer to your question lies on, like, a fund, for example Elara India [Opportunities Fund], what [are] its concentrated holding[s]? So what are its top ten value [of] holdings? So you would come to know who controls this fund, which conglomerate controls this fund. It’s very simple.”

As explained above, around 99% of Elara India Opportunities is comprised of Adani stock, and previously in June 2022, 93.9% of Vespera was invested in Adani Enterprises:

“The picture is right there, you know. It’s like staring in your face. It is just [that] somebody needs an audacity to kind of put it down on a piece of paper and you know just get it out. Because it´s right out there. You can see that, okay, but does somebody have the courage or the balls to really put it out there?”

The stock prices of all Adani Group companies have fallen through the last 7 days, since Hindenburg’s report came out, some by nearly 50%. But it wasn’t fraud that was the problem—the problem was that it was fraud against its own investors.

The successful offer

If you’re a publicly-listed company looking to raise money by selling stock, the way to go about doing this is by pricing the stock that you’re selling less than the price of the stock available on the stock exchange. If you price your stock more than the market price, investors who want to buy your stock have no reason to buy the stock from you and can just buy it from other investors on the market.

Adani Enterprises, one of Adani Group’s companies, was looking to sell its stock at a 10-15% discount to the market price. Then its stock price fell thanks to Hindenburg and it ended up selling the stock at a 10-15% premium to the market price (the stock’s even further down now). Investors committed to buying stock from Adani at a price higher than what they could get right away in the market!

From an efficient markets point of view, this was totally bizarre. If an investor has a choice to buy the same stock for a high price as well as a low(er) price, she should buy it at the lower price, every time.

When news first came out that Adani had succeeded in selling stock at a price higher than market price, there was a lot of head scratching. Then reports came out that other Indian billionaires including Sunil Mittal and Sajjan Jindal had bought those shares with their own cash, while retail investors (like you and me) and mutual funds had stayed away.

That makes sense! If you’re a company selling to random small investors, mutual funds, pension funds, etc. what’s most important for those investors is that they get a good price for your stock, certainly below the market price. That’s the entire point of them buying from you. But if you’re selling to your friends, the price is maybe not so important. You could imagine Adani calling up his billionaire friends and saying, “Bro, can you please put in a couple thousand crores into my stock, I’ll owe you one,” and the billionaire friends reluctantly following through because a friend in need is a friend indeed?

The reason this stock-sale (called the “FPO” or follow-on public offering) was important for Adani was:

  1. Adani’s companies were owned almost entirely by Adani or shady Mauritius funds (allegedly) controlled by him. If he or his investors wanted to sell stock in the future, he would need retail investors and mutual funds to buy
  2. It’s a big prestige issue! “When I sell, investors buy,” is a powerful statement to the world

When Adani’s billionaire friends bought his stock almost as a favour, point (1) was out the window. But (2) would still hold up*.* Adani had succeeded in selling stock, just not to the investors he was looking for. [3]

The unsuccessful offer

Last night, Adani Enterprises called off its public stock offering, and decided to return all the cash that investors had committed. After probably days of pursuing investors, when investors finally bought Adani stock, why return it?

If you’re a company selling a large amount of stock, you might worry that you might be selling too much stock and that investors wouldn’t have the money to actually pay for it, even if they would want to. The way around this is to either:

  1. Sell less stock, only as much as investors can actually afford to pay
  2. Sell the same amount of stock, but collect half of the money now, and half later

Option (1) is boring because then the company won’t actually get all the money it wants. Option (2) is nicer, for the company at least.

If you’re an investor, though, there is an apparent risk. If you pay ₹50 to buy a share worth ₹100, you’re “reserving” the full share for half the price. Later, when the company asks for the remaining ₹50, if the share price is around ₹100 (or more), all good! You’ll pay ₹50 and convert your half-share to a full-share. But if the share price has fallen to, say, ₹40, it’s a problem. Now you as the investor have two options:

  1. Pay ₹50 to convert your half-share into full
  2. Lose your initial investment of ₹50, take the loss and move on. (If you really want to, you can buy the stock at ₹40 from the market)

Option (1) is just stupid. (2) is the only rational thing to do. [4]

Adani Enterprises, in this public offering, was to issue partly-paid shares to its investors, just like I described above. Investors committed to buying its shares at ₹3,112 each by paying half, that is, ₹1,556. They had overpaid to begin with, and yesterday, the share price fell another 30% to ₹2,179.

You see the problem here? If the stock price falls another 30% and goes below ₹1556, these investors in the future would face the awkward choice of either losing 100% of their initial investment or doing Adani a second favour and overpaying for its stock. Again!

One could imagine a situation where anonymous, innocent small investors would buy Adani stock in its public offering and then lose their initial investment entirely because the stock fell a bit too much. But if these investors are your own friends who did you a favour in the first place—you don’t want their investment to go to zero and would rather give them back their money.


[1] The fraud here is more against the company’s future investors who might end up buying your stock at intentionally high prices, rather than its current investors who would love if your stock price went up.

[2] Hindenburg obviously has dug into this a lot more and Finshots does a great job of summarising and simplifying all of Hindenburg’s allegations and Adani’s responses here. Most of the firm’s allegations are actually based on public information from Adani Group’s own disclosures.

[3] Yesterday, a Forbes article titled “There’s Evidence That The Adani Group Likely Bought Into Its Own $2.5 Billion Share Sale” suggested that Adani Group bought its own stock in its stock offering. I find the evidence unconvincing. The report has a great catch in that one of the underwriting banks, Elara Capital, is associated with one of the shady Mauritius-based funds that hold Adani stock, Elara India Opportunities Fund. This should probably not have been allowed by SEBI—underwriting banks shouldn’t be having a conflict of interest—but it’s a massive jump to say there was evidence for Adani buying into his own FPO.

[4] A partly-paid share is essentially a call option for the investor. If the share price falls by 50%, the investor loses 100% of their investment.


Problem was not about the FPO only, but the entire gamut of the Adani empire. Investors who invested in its companies always suspected this, but rode the gravy train.

Hindenburg was bound happen. If not this company then somebody else would have pricked the baloon.

Disclaimer: Have made a small investment in Ambuja Cement.


Exactly! They rode the gravy train because they felt the government would save the company no matter what. The second the tables turned on investors – they fled!

Following up from my last post here:
An account of the Adani saga: Credit Suisse stops accepting bonds as collateral, Adani prepays some loans, SBI gets more pledged shares

Borrowing and lending are at the heart of investing. An investor might buy a company bond (that is, lend the company money) and then take that bond and use it as collateral to borrow from a bank. Maybe the company’s paying you 7% interest and the bank’s charging you 6%, so you make a neat 1% profit without technically spending your own cash. [1]

Also at the heart of investing is risk. If a company’s paying you a higher-than-usual interest, there’s likely to be a higher-than-usual risk. You might be OK with this risk, but sometimes the bank that’s lending money to you might not be.

That’s exactly what happened when Credit Suisse stopped accepting Adani bonds as collateral about 10 days ago. Since then, so have two others, Citibank and Standard Chartered.

Last October in Adani really likes loans , I wrote:

If you’re a lender to a company, you don’t really care where the money that’s repaid to you comes from as long as you’re paid back. If you buy a company bond, you don’t have to bet that the company will succeed; only that the company survives long enough to pay you back. The money might come from the company’s business (it isn’t), from the owner’s personal fortune, or hell, even from the most recent lender.
Lending to a company that doesn’t generate enough cash by itself is just the finance version of ‘pass the parcel’. Till someone continues to lend, it’s fine. But when the music stops, you don’t want to be the one left holding the parcel.

Credit Suisse is extremely aware of this game of pass the parcel. It’s a veteran. A year-and-half back, the bank lost $5.5 billion at exactly this game!

Very briefly, this is what happened [2] : Credit Suisse and other banks like Goldman Sachs lent money to a hedge fund to buy some stocks. The hedge fund bought a ton of stock, and the price of the stock went up. So Credit Suisse and the other banks lent the hedge fund even more money to buy more stock, and kept some of the stock as collateral. This was fine for as long as the price of the stock kept going up. But then the price of the stock started going down. Some smart banks—including Goldman—were quick and sold the stock they held as collateral. Credit Suisse was slow and was left holding the parcel and got caught with a $5.5 billion loss.

Well, this time around Credit Suisse was quick! This really says more about Credit Suisse than it does about Adani. After all, banks like Goldman Sachs and JP Morgan are happy to sell Adani bonds to their clients, presumably they’re still lending against them. Credit Suisse would rather sit this one out.

Adani needs to repay Barclays

Banks had lent money to Adani against his companies’ stock. The stock prices fell. So the banks asked Adani to post more collateral. Here’s the Financial Times:

The lenders of the $1.1bn loan, which included Barclays, Citigroup and Deutsche Bank, requested last week that the billionaire top up the amount of stock pledged against the loan after a sharp fall in the shares of the listed Adani companies, according to the people with knowledge of the matter.

Since the allegations were published on January 24, the sell-off in the listed businesses had at one point knocked Rs9.4tn ($114bn), or about 50 per cent, off their value.

As the shares continued to slide, Barclays informed Adani of a margin call equivalent to 50 per cent of the loan in cash, said the people, who spoke on condition of anonymity.

Rather than post cash against the loan, which did not mature until September 2024, the Adani Group’s founder and his family opted to repay it completely. Adani has not disclosed the source of the funds used to repay the loan.

Barclays asked not just for more stock but for half the cash they lent out! So… Adani decided to just prepay the whole $1.1 billion?!

When a bank lends you money but then asks for some of it back, it wouldn’t usually expect you to just waltz in and pay it all back at once. This is an unexpected financial cost for you, after all. You might have to sell some of your assets, maybe renegotiate the terms a bit so that you don’t have to do a fire sale. Sometimes companies aren’t able to pay at all and they go bankrupt. It’s tough!

Two weeks ago, Adani was out in the market trying to raise ₹20,000 crore ($2.5 billion) from investors. Some of it was to pay back his companies’ loans. Today, he paid back $1.1 billion when he didn’t even need to. I’d love to know where this money came from.

Adani doesn’t need to repay SBI

When Adani stocks first started falling, right after Hindenburg published its report, people were worried about banks that had given loans to Adani against his company stock. Here’s State Bank of India (SBI) chairman Dinesh Khara from less than two weeks ago:

SBI chairman Dinesh Khara said the bank does not envisage the embattled ports-to-mining group facing any challenge to service its debt obligations and stressed that SBI has not given any loans against shares to the group.

Khara said that SBI didn’t lend to Adani Group with Adani company shares as collateral. So it didn’t matter to the bank if the stock prices went down.

Here’s a disclosure, and another disclosure, and yet another disclosure from earlier this week filed by SBICAP Trustee (a subsidiary of SBI), saying that they’re holding shares of three different Adani companies as collateral on behalf of SBI . It did, after all, matter to SBI if Adani shares went down.

But really, the SBI chairman misrepresenting the situation isn’t the biggest concern here. In Adani really likes loans ), I wrote about why banks like lending against shares:

The good thing about keeping your shares as collateral instead of, say, your house is that if your stock price goes up, you can then then ask the bank to keep fewer shares as collateral. Unlike a house, where if its market value went up, the bank wouldn’t be OK with just your bedroom. (It would make perfect financial sense to do that, mind you, just not practical sense. Try selling a bedroom without the rest of the house.)

If you’re a bank, the whole purpose of holding shares as collateral for a loan is that you can sell those shares easily, if you really had to. Two of the companies that SBI just took on more shares of, Adani Transmission and Adani Green, are hitting lower circuits nearly everyday [3], which means that there are too many people trying to sell the shares with no one willing to buy.

When Barclays was worried about its loans to Adani, what it did was ask for cash. What it didn’t do was ask for more stock. Because what would it do with the shares of a company that it couldn’t sell? SBI, though, seems happy to have stock it can’t sell.


[1] Apart from this simple view of collecting the “spread” between your bond coupon and your loan interest, you might also buy a long-term bond and then need some cash along the way. Instead of selling your bond at a discount, you can just use it as collateral and borrow some short-term cash from a bank.

[2] If you’d like to go deeper into this, Matt Levine, of course, has the best account of the episode. Here .

[3] “Lower circuits” and “upper circuits” are stock market protection mechanisms where the exchange temporarily halts trading if the price of a certain share either goes above or below a certain pre-decided threshold. If a stock hits “lower circuit” (generally around 5 to 10% below the opening price), it means that the share price of that stock has fallen as far as it could, and the exchange can’t allow it to fall any further for that day. So, as a seller, you can’t sell any more stock.


Post about GQG Partners investing in Adani stocks

An investor’s main job is to disagree with everyone else. You buy a stock if you think the price is low, and sell it if you think it’s high. When you’re buying, you think the stock price is low and will go up, but you’re buying it from someone who thinks the opposite. Similarly, you sell a stock when you think the price is high, but the investor on the other side thinks otherwise. There’s quite a bit of disagreement!

Yes, I’m oversimplifying. There are lots of folks in the markets. Some might be gambling. Others might buy a stock even if they think it’s expensive, because they think there’ll be a greater fool who they can sell it to later at an ever higher price. That said, it’s useful to think of an investor as someone seeking to be contrarian. They want to disagree with other investors because that’s how they really make money.

GQG Partners is an American investment firm known to make contrarian investments in companies. Earlier this month, it invested ₹15,446 crore ($1.9 billion) in Adani Group companies. Definitely a contrarian bet after the Group was accused of fraud and their stocks fell by more than 50%. (In case you somehow missed the whole saga, I wrote about it here.)

One reaction to this is of skepticism. Adani Group has anyway used Mauritius-based funds to inflate its own stock prices (so the accusation goes), maybe it’s now using GQG? Well… GQG isn’t a strange Mauritius fund. It’s a company that manages $90 billion that everyone knows about and generally has a good reputation.

Okay, let’s chuck their reputation. Large banks have great reputations yet do shady deals all the time. If you’re an investment firm that manages funds with your clients’ money, and you’re in the mood to “help” a company that’s just been accused of fraud, you might do it with maybe one or two of the many funds that you manage. Why risk more?

GQG bought shares of 4 Adani companies, and it did so across more than 20 distinct funds. Some of those 20 funds include retirement funds for

  1. Government employees of two US states, New York and Texas
  2. Australian workers
  3. Saudi Arabian citizens

I mean… GQG isn’t going to be intentionally messing around with retirement funds across three continents, less so government ones. Adani is really just a contrarian investment.

Adani (finally) sells some stock

Back in late January, Hindenburg Research accused the Adani Group of fraud. At the time, the conglomerate was in the process of selling some stock to investors. There were broadly three reasons for this stock sale:

  1. Fund new projects
  2. Repay some company loans
  3. Reduce Adani’s (the individual’s) stake in Adani Enterprises, which is super high and close to the upper limit of 75%. This would also help in shutting up people (like me) who claimed Adani share prices were high only because he owned all the shares

Eventually, though, Adani Group cancelled the stock offering and returned whatever money it did raise. In a way, Adani finally did this month what he couldn’t in January. He sold some stock to investors!

There’s a difference. In January, it was Adani Enterprises selling stock. This time around, it was Adani the person that sold the stock. [1] The difference between Adani and his companies is often blurry, because he owns more than 60-70% of all his companies, but there is still a difference.

Because it was Adani the person that sold the stock and not Adani the company, the money fulfils different goals. He can’t really fund new projects [2] and he can’t repay company loans. In fact, Adani’s already putting some projects on hold.

What Adani can do with this money is repay his own loans! When Adani stock prices fell, banks that had lent money to Adani against his companies’ stock asked for some of the money back. So Adani decided to repay his loans in full. Here’s him two weeks ago repaying $2.65 billion that he borrowed to buy Ambuja Cements. I had earlier written about him repaying a similar loan of $1.1 billion.

Adani didn’t want to fund new projects, or repay the high debt that his companies have frequently been criticised for. But he clearly really needed money to repay his own loans. It was a happy coincidence that he succeeded in fulfilling goal (3) that I mentioned above—he reduced his own stake in his companies, a bit at least.

GQG likes the leniency

I wrote earlier that a company being accused of fraud, by itself, wasn’t reason enough for investors to think less of it. If you’re a company that’s accused of a number of frauds, and one of those frauds is being on the receiving end of government “leniency”, it could actually be good for your investors.

When Adani stocks started to fall, the problem wasn’t that Adani Group was accused of defrauding the government or people at large. The problem was that the Group was accused of fraud against its own investors by inflating its companies’ share prices.

For an investor whose job it is to be contrarian, the question then becomes—do the benefits of the first kind of fraud outweigh the pitfalls of the second kind of fraud? Rajiv Jain, the chairman of GQG Partners, spoke to ET Now on a Sunday morning after the $1.9 billion investment in Adani companies. Here’s what he said: [3]

Something not well appreciated is that the barriers to entry in infrastructure anywhere in the world are very high, particularly in India, execution extremely difficult.

You might remember that POSCO Iron and Steel tried to acquire land for seven, eight years, couldn’t even acquire land, and then they left. So greenfield projects are very, very difficult. And that’s what actually we quite like about this group is they have shown remarkable ability to execute on greenfield projects. And I feel that they don’t get full credit for that in terms of ability to pull that off.

Rajiv Jain likes that Adani could build infrastructure projects in a country where other multinationals couldn’t even acquire land in eight years. Yeah, I think what he’s saying is that he likes the “leniency” that Adani’s been getting from the government. And he’s willing to pay a higher price for the company because the benefits outweigh the costs. [4]


[1] “Adani the person” could be Adani’s family members, the trusts that hold his stock, etc., not necessarily the man himself.

[2] Technically he can, it’s still his money. But he’d have to lend to his companies, in which case he would rather just have raised money via a stock offering directly.

[3] If you watch the interview you’ll see that the swooning journalist doesn’t ask Rajiv Jain the tough questions. The journalist asks him about what he thought of Hindenburg’s accusations, and Jain waives them off saying it’s stuff everyone has already known for a while. But what does he think about the specific accusation of Adani owning Mauritius-based funds to inflate his stock prices and defraud his investors? No idea, the question wasn’t asked.

[4] Another way to look at this is that the accusations against Adani are of defrauding on price, not on assets. The assets that Adani companies own are real and tangible, there is no argument about it. The accusation of defrauding investors is about overpricing the assets, something that GQG seems to think is fine after the massive fall in share prices.

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Adani investing in Adani via Bermuda funds

Adani Group is a multinational conglomerate comprising a bunch of Adani companies, seven of which are publicly listed. Adani is controversial. There are some political reasons for this, which I probably don’t need to get into, but also because of some financial reasons. One big financial reason for his controversy is that Adani (the person) owns too much Adani (the companies) stock.

I’ve narrated this story before. If you want to buy, say, 80 shares of a company, but if there are only 20 shares available in the market, you’re going to have to keep increasing the price you’re willing to pay for those additional 60 shares. Your hope is that if the price hits a certain sweet spot, there would be more sellers that show up. You hike the price you’re willing to pay, until there are sellers willing to sell. It’s just the standard way any market works.

If you’re the company whose shares are listed on the market, one (illegal) way for you to push your stock price up is by just buying up all the shares available to be sold. If you own most of the shares, other buyers will show up, but there won’t be any stock to sell. So the buyers will offer more, and your stock price will go up so long as someone is motivated enough to bid.

This really has been the story of Adani Group all along. Officially, legally, Adani owned only about 75% of his companies, the maximum legal limit. But unofficially, illegally, the claim goes that he owned more than 90–95% of his companies using some Mauritius-based funds as proxy. Because of which Adani companies’ stock prices went up, up, up, more than 1500% in 5 years.

The deal with these Mauritius-based funds is that no one really knows who owns them. Everyone’s guessing. Anyway, here’s the Financial Times last week filling in some blanks and giving us some names:

From the outside, the Global Opportunities Fund in Bermuda looked like any regular investment fund: broad, bland, and uncontroversial.

On the inside, however, two men were using the fund for a specific purpose — to amass and trade large positions in shares of the Adani Group, one of the biggest and most politically connected private conglomerates in India.

The two men — Nasser Ali Shaban Ahli from the United Arab Emirates and Chang Chung-Ling from Taiwan — are associates of Vinod Adani, brother of the conglomerate’s founder Gautam. Their investments were overseen by a Vinod Adani employee, raising questions over whether they were front men used to bypass rules for Indian companies that prevent share price manipulation.

Bermuda? What happened to Mauritius? When I wrote about Adani last year, and when Hindenburg accused to Group of pulling the “largest con in corporate history,” it was all Mauritius. Suddenly there’s Bermuda? More from FT:

Documents show that Ahli and Chang began their investments in Adani stocks in 2013, when the group sold equity to private investors to increase the public shareholding at its then three listed companies as regulator Sebi, the Securities and Exchange Board of India, sharpened enforcement of the 75 per cent rule.

According to the documents, in January 2017 Ahli and Chang secretly controlled at least 13 per cent of the free float — the shares available to be traded by the public — in three of the four Adani companies listed at the time, including the group’s flagship Adani Enterprises.

Ah, got it. This was from 2013 to 2017. SEBI allows owners of publicly listed companies to own at most 75% of the company’s shares. Adani is accused of using some Mauritius funds to bypass this rule, but that’s more recently. FT, working alongside the Guardian and the Organized Crime and Corruption Reporting Project (what an intimidating name!) discovered evidence of Adani using some Bermuda-based funds in addition to the Mauritius ones.

It’s fascinating that FT could even get hold of these documents. SEBI itself seems to be having a tough time finding who owns these funds. But—and I don’t like myself for saying this—who cares about these Bermudian funds? These two guys who ran the fund, Nasser Ali Shaban Ahli and Chang Chung-Ling, might’ve secretly owned Adani’s shares on behalf of Adani 6–10 years ago, which would be illegal, sure. But Adani’s share prices went up like mad (more than 16X) much more recently, after 2020.

r/IndiaInvestments - There is now evidence that shows Adani invested in his own companies via Bermuda-based funds. A fun read that examines the report

Bermuda fund owned Adani stock from 2013 to 2018. But the main price rise in Adani companies’ stock came after 2020.

FT goes into more detail, even figuring out how Adani got his money over to the Bermudian fund in the first place. Here’s what FT found Adani did:

  1. First, created a shell company in Dubai called Electrogen Dubai. This was, on paper, one of Adani’s business vendors. Adani paid this company more than $900 million.
  2. Electrogen Dubai then transferred this $900 million to Electrogen Mauritius, its parent company based in Mauritius (presumably because it’s easy to incorporate anonymously-owned companies there).
  3. Electrogen Mauritius then lent $100 million to some other Mauritian company, which was also owned by Adani. [1]
  4. This other Mauritian company then invested in the Bermudian Global Opportunities Fund!
  5. The Bermudian fund then invested back into Mauritius, by buying into two funds called Emerging India Focus Funds and the EM Resurgent Fund. (In case you’re wondering what’s up with these names, there’s really no significance. They’re just names that make the fund sound legit.)
  6. Finally, these funds invested that $100 million into Adani companies.

Phew. This money has moved around quite a bit. FT does a good job summarising this journey in one of its section titles: India to Dubai, to Mauritius, to Bermuda, Mauritius again, then back to India. [2]

Investors love that the government loves Adani

I’ve written this a couple of times now. I think it’s time I start maintaining a list of these repeatable themes. If you’re a company that’s accused of fraud, and one of those frauds is being on the receiving end of government favouritism, it’s usually good for your investors. You and your investors are going to make more money.

In January, Hindenburg Research accused Adani of fraud, and Adani companies’ stock prices fell by more than 50%. In March, GQG Partners, a US-based investment firm with generally good credentials invested $1.9 billion in Adani companies. Since then GQG has invested a few billions more into them.

Here’s me when GQG first invested in Adani:

Rajiv Jain [of GQG Partners] likes that Adani could build infrastructure projects in a country where other multinationals couldn’t even acquire land in eight years. Yeah, I think what he’s saying is that he likes the “leniency” that Adani’s been getting from the government. And he’s willing to pay a higher price for the company because the benefits outweigh the costs.

For GQG, presumably as with other investors, apparent government favouritism wasn’t a problem. It was the reason they invested in the Group in the first place!

The Financial Times, apart from writing about the Bermudian funds, also wrote about how investigations into Adani were closed after the currently-in-power BJP government was elected.

The DRI investigation into Electrogen was set aside by a senior official in 2017, a decision that was appealed internally and eventually endorsed by a tribunal: it found that contracts, which the DRI alleged had earned Vinod Adani profits of at least $900mn when Electrogen acted as a middleman between the Adani Group and its suppliers, were appropriately priced and conducted “at arm’s length”, and that bank records relied on by the DRI were inadmissible as evidence.

A separate probe into an earlier scheme, an alleged circular trade in diamonds by Adani companies to illegally exploit government export incentive schemes, in which DRI documents mention Vinod Adani, Chang and a company represented by Ahli, was also closed without result in 2015.

FT also added this fun bit:

Sebi’s chair at the time left in 2017. In March this year he became non-executive chair of New Delhi Television (NDTV), owned by the Adani Group, which said he was an individual of “impeccable integrity”.

SEBI is the market regulator. Adani had a bunch of investigations ongoing against him. There was probably some investigating for SEBI itself to do here. But nothing happened, and SEBI’s chairman from back then is now a director at one of Adani’s companies.

One might look at this FT report and think, “Hey cool, we finally have some real evidence that Adani broke the rules and used some shady foreign investors to buy his own companies’ stock.” But one might look at this FT report and just as reasonably think, “Hey cool, the government really loves Adani. I should probably go buy some Adani stock.”

Boy, this is definitely not investment advice.


[1] The Financial Times could find the paperwork for only $100 million of the $900 million that Electrogen Dubai transferred to Electrogen Mauritius.

[2] Here’s a funny bit from the same Financial Times report:

Chang said “I know nothing about this” when asked if he was an Adani associate who secretly purchased shares for them. He declined to say if he knew Vinod Adani, suggested the reporter “might be AI”, and eventually hung up.

“The reporter might be AI.” Chang was either extremely good or extremely bad at bullshitting and I’m unable to decide which.