After winning the 2014 general election, Indian Prime Minister Narendra Modi boarded a private jet from his home state of Gujarat, to the capital, New Delhi.
Sticky on the side of the plane is the name of an industrial mogul and personal friend of the new prime minister: Adani.
The son of a small textile merchant, Gautam Adani was an important ally of Modi and his right-wing Bharatiya Janata party.
His ascent mirrors that of prime minister. Both men hail from the western state of Gujaratwhere they built their respective businesses and political power before making their way to the national arena.
Since Modi took office nine years ago, Adani’s fortune has skyrocketed as his vast empire won contracts to build infrastructure projects around the country, making him one of richest person in the world with a net worth of $134 billion (£110 billion) at the end of 2017.
But now, the Adani Group is in crisis after a US short seller accused them of manipulating stock prices and committing accounting fraud late last month.
Although Adani has strongly denied the allegations and issued a 400-page rebuttal, the statements raise questions about the rapid rise of one of India’s standout success stories and poses a major test of Indian capitalism and its reputation among international investors.
The Adani Group is an Indian industrial conglomerate that includes ports, airports, power infrastructure, coal and renewable energy.
The company was founded by the chairman of the same name in the late 1980s as a cargo business and quickly expanded into port infrastructure to boost its business.
In recent years, the company has grown into an empire of strategic importance affecting the lives of millions of Indians on a daily basis. Among other things, Adani stocks a third of the country’s grain, produces a fifth of cement and is one of India’s largest private airport operators.
However, now Adani finds himself fighting to survive. New York-based short-seller Hindenburg Research accused the company of carrying out “the largest scam in corporate history” by using offshore tax havens to commit fraud and stock market manipulation.
The report, which followed Hindenburg’s two-year investigation, claimed that Adani had engaged in “blatant securities manipulation and accounting fraud” for decades.
The Adani Group responded, saying the allegations were “not merely an unwarranted attack on any particular company but a calculated attack on India, its independence, integrity and quality of Indian institutions and India’s growth and ambition story”. It added that the claims were a “malicious combination of selective misinformation and old, baseless and discredited allegations”.
The impact on the Indian conglomerate, however, was both swift and brutal. The company’s stock price has halved since Hindenburg released the report two weeks ago, taking away about $100 billion in market value and $60 billion in the chairman’s net worth.
Just days after the report was published, Adani was also forced to forgo a $2.4 billion share sale as international investors shunned a company in turmoil.
The fundraising is seen as an important moment for Adani, not only because it will help the company cut its debts but also because it is seen as a measure of confidence in the industrial empire.
In the latest blow, Moody’s downgraded the outlook for four Adani companies to negative from stable on Friday.
The ratings agency said: “These ratings actions follow a significant and rapid decline in the market equity value of Adani Group companies following a recent report from one short seller highlighted governance concerns within the corporation.”
While the crisis for Adani lingers, the bigger issue at stake is India’s global reputation for the integrity of corporate governance rules and its ability to attract international investment.
Modi’s effort to speed up the privatization process has drawn the ire of opposition politicians, who accuse the prime minister of concentrating state assets in the hands of a few tycoons. Adani’s recent problems will only add fuel to the fire.
In 2017, a leaked government audit said that Adani Power, a unit of the group, had received “favors” from the state for the rates it was allowed to charge. The company denies the allegation.
Last week, Jairam Ramesh, general secretary of the opposition Congress party, asked: “What action has been taken, if any, to investigate the serious allegations made over many years against the Adani Group ?”
And to mock Modi, he added: “Is there any hope of a fair and impartial investigation under your authority?”
International investors will be interested in watching. Gary Dugan, head of the Global Office of the CIO, an asset manager, told Bloomberg that the Adani case has the potential to trigger a “major reassessment” of the risks of investing in listed stocks. listed in India.
“That reassessment includes governance, corporate transparency, nepotism and debt,” he said.
Closer to home, Jupiter was the only British money manager involved in the sale of the Adani shares that were eventually abandoned. The only collateral damage in the UK appears to be Jo Johnson, a former universities minister and brother of Boris, who has given up his role as an adviser to a company accused of ties with Adani named in Hindenburg’s report.
But Adani’s rich story won’t end without a fight. Just hours after the company sold a significant stake, the 60-year-old took to television in traditional attire and appeared defiant.
He said his empire’s finances remained stable and that the current crisis would not affect its upcoming operations or plans. He ended his speech with a hint of nationalist enthusiasm. “Jai Hind,” he said, or “Victory India.”
He and Modi may need more than love for their country to save the troubled conglomerate and India’s reputation on the international stage.
