Adani’s billionaire brother starts to retreat as scrutiny builds

It’s been three months since a short seller in New York roiled Gautam Adani’s empire, wiping out almost $120 billion in market value, invigorating India’s opposition party and spurring the country’s top court to investigate.

Still, questions raised by Hindenburg Research linger. Chief among them: What’s the extent of Adani Group’s dealings with Gautam’s older brother, Vinod?

According to Hindenburg, Vinod Adani has played a pivotal part in perpetuating what it alleged is “the largest con in corporate history.” Adani Group, which hasn’t been charged with any crimes, has denied the accusations.

But in late February, as questions mounted and Adani Group’s share prices plunged, Vinod stepped down as director of three companies connected to the family’s coal mine in Australia, on which it has staked billions of dollars.

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These resignations, which haven’t previously been reported, happened just days before India’s Supreme Court ordered a committee to probe if regulators had failed to oversee Adani Group. Meanwhile, the Securities and Exchange Board of India is examining whether some transactions between the group and Vinod were properly disclosed.

As Adani’s dealings come under renewed scrutiny, more is coming to light that raises questions over governance, disclosures and whether the conglomerate has been benefitting from its closeness to Prime Minister Narendra Modi’s government and importance in carrying out its agenda.

Much is at stake: Modi’s grand ambition to turn India into an economic superpower has been key to Adani Group’s stunning rise over the last decade from a regional player to an infrastructure behemoth. But Hindenburg’s report has set some investors and political allies on edge. And it has emboldened Modi’s main rival, the Congress Party, to keep the accusations front and center.

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Documents related to the Australian mining project, known as Carmichael, provide a fragmented, often incomplete, look at the inner workings of the Adani empire. But taken together, they illustrate why some call Vinod the quiet power behind his brother’s ascent.

In a statement, an Adani Group representative said Vinod, aside from being a shareholder of certain entities, had no management role in the development of the Carmichael mine or its related infrastructure. Vinod didn’t respond to emailed questions.

Costly Project

Years ago, in Queensland’s Galilee Basin, Adani Group began its push for Australian coal. Buried in the soil are vast deposits that could power a rising India, even as the Earth overheats. The Carmichael project is one of the group’s biggest undertakings.

Bloomberg News reviewed hundreds of pages of filings covering different pieces of the project. Time and again, the paper trail leads back to Vinod Adani.

Using a maze of entities under his purview in at least four jurisdictions, Adani Group offloaded debt and received more than $1 billion of his money to help fund the project, the filings indicate.

The depth of his involvement showcases a key point of contention between Adani Group and its critics, including Hindenburg.

The short seller’s Jan. 24 report said dozens of shell companies controlled by Vinod had moved billions of dollars in and out of Adani Group companies, seemingly to embellish share prices and financial results. Piecemeal regulatory filings gave a glimpse into how the money flowed, but disclosure was scant and seemed to flout legal requirements for related-party transactions, Hindenburg said.

In response, Adani Group acknowledged that Vinod is part of the family shareholder group — promoter group, in Indian parlance — and said it made all required disclosures. It largely rejected questions about the brother’s business affairs, saying they’re irrelevant given he’s not a manager at the group’s public companies or their closely held subsidiaries.

Bloomberg News later reported he has a cabin in the Dubai office of Adani Global FZE — a commodity distributor owned by one of the family’s publicly traded firms — and spends two or three hours daily there. When asked about this, an Adani Group representative repeated that such queries were “of no relevance.”

To Hindenburg, Adani Group’s response to questions about Vinod was a tacit admission it, at best, selectively follows disclosure laws for related-party dealings, and obfuscates the true breadth of his involvement.

In a March 21 report entitled “Adani Group: The Known Unknowns,” S&P Global Ratings analysts said “any transactions with the brother and entities where he is a beneficiary should be disclosed as related-party transactions.” It added that Adani Group’s ratings could be cut if investigations uncover “serious wrongdoing” like previously undisclosed related-party loans or misreporting.

Adani Group said it “strongly rejects” suggestions that the conglomerate hasn’t followed regulations and accounting standards.

“We are confident that all our business dealings are fully compliant, properly disclosed, and conducted in the best interests of the shareholders of listed Adani companies,” a representative said.

Four legal experts who spoke to Bloomberg News say siblings like Gautam and Vinod by definition are related parties, which warrants disclosure of all business deals.

But there’s room for ambiguity: several different laws govern this topic in India, and concepts like influence and relationships are legally elastic. Layers of subsidiaries run by others may help put enough distance between close family members to sidestep the technical definition of a related party transaction, said Vikramaditya Khanna, a law professor at the University of Michigan.

“The law will often want some proof that the person was influential,” he said. “But proving ‘influential’ is tricky.”

Big Endeavor

Until recently, few outside India’s elite had heard of Gautam’s 74-year-old brother. He’s believed to have made a fortune trading commodities and is worth at least $1.2 billion, according to the Bloomberg Billionaires Index. He runs a family investment office in Dubai and is said to be close with his younger brother.

Over the years, he’s been involved in some of Adani Group’s largest undertakings, from acquisitions of cement companies to green energy. Carmichael is one of the longest-running examples.

It started with a couple of big deals. By 2011, Adani Enterprises Ltd., the family’s flagship publicly traded company, had agreed to pay at least $2.4 billion for mining rights in the Galilee Basin and a lease on a port in northeast Australia, on the stretch of coastline that’s home to the Great Barrier Reef.

Adani Group said the coal was needed to provide power to millions in India. Environmentalists said the fuel, if tapped, would endanger global climate targets.

In early 2013, a key link in the Carmichael chain was established: a Singapore-registered company called Abbot Point Port Holdings Pte. Vinod was for years its sole director and still serves on the board, filings show. SB Adani Family Trust, the entity the clan uses to control its many businesses, is Abbot Point’s ultimate owner.

Between Abbot Point and the trust are a series of entities in the British Virgin Islands and the Cayman Islands. Some filings describe Vinod as the beneficial owner of those.

Under Pressure

Around that time, the Adani empire was under pressure. Carmichael was just one of many costly expansions. And at least one major international bank, Credit Suisse Group AG, had recently raised questions about high debt levels at Indian conglomerates, including Adani Group.

That year, Adani Ports & Special Economic Zone Ltd., the family’s publicly traded port operator that had taken control of the Australian port assets, sold them to Abbot Point.

In one stroke, Adani Ports reduced its debt by $1.8 billion, documents show.

The family effectively moved a large chunk of debt from a listed company into the private orbit under Vinod’s purview, and bolstered Adani Ports’ credit rating in the process, said Tim Buckley, director of Sydney-based think tank Climate Energy Finance, which analyzes financial issues related to the transition from fossil fuels. An Adani Group representative said the deal was done at fair market value and appropriately disclosed.

A similar manoeuvre soon followed. Another Singapore company under Vinod’s oversight, Carmichael Rail and Port Singapore Holdings Pte., acquired $116 million of Carmichael mining assets from Adani Mining Pty., an entity owned by Adani Enterprises, filings show. After the transaction, which occurred in the fiscal year ended March 2015, Carmichael Rail and Port Singapore wrote down their value by 20 per cent.

Hindenburg said it was an overt attempt to shield Adani’s flagship firm from the loss. Adani said it was a usual and legitimate transaction.

Financing Flow

The Carmichael project again turned to Vinod in 2018, this time for financing. The environmental uproar and uncertainty about the mine’s viability had made many lenders reluctant to directly fund it.

That year, hundreds of millions of dollars started to flow from two investment companies: Kommerce Trade & Service DMCC and Adani Global Investment DMCC. Both are based in the United Arab Emirates, and both are controlled by Vinod, according to their websites.

The money passed through Abbot Point in Singapore and then into various parts of the Carmichael project. The loans grew to $1.2 billion by March 2022, documents show.

Adani Group said the transactions were all at arm’s length and appropriately disclosed.

Even with voluminous records, the money is hard to track. Most has flowed into trusts, which don’t report financial results, making it impossible to tell where it ended up. In other instances, recipients simply report in filings the funds came from a “related party,” offering no other details. And public disclosure in Mauritius, the Cayman Islands and UAE is scant.

The circuitous flow also makes it difficult to determine precisely how much the Adani Group has spent on the project. Buckley pegs the total at more than A$5 billion ($3.3 billion), meaning the money from Vinod’s companies has likely covered a significant share.

Vinod stepped down as director of Carmichael Rail and Port Singapore, the company that acquired assets from the Adani Enterprises unit, on Feb. 27. He also resigned as director of two subsidiaries, Carmichael Rail Singapore Pte. and Abbot Point Terminal Expansion Pte., filings show.

He remains on the board of Abbot Point, where filings show he was paid more than $1 million of salary and benefits over a period of at least five years.

Adani Group didn’t address a question about the resignations. But Buckley, who’s observed the conglomerate for years, said it seems like a “logical house-cleaning” to distance Vinod from the Adani empire.