By Adam Tooze
A staggering sell-off of the stocks of Indian conglomerate Adani Group was sparked last week by a report released by Hindenburg Research that raised questions about the group’s debt levels and use of tax havens.
But the controversy has focused attention on the group’s central role in the Indian economy and its founder’s close relationship with Indian Prime Minister Narendra Modi.
It’s a more classic story of the accumulation of capital by means of trade, trading on margins, basically, and then a shift into infrastructure. And this is where the key element in the Adani story comes in, which is politics and the politics of connections and clientelism.
I think the key phrase is nation-building—both words in that hyphenated term. So national projects aiming for truly comprehensive scale, which—when you’re dealing with a subcontinental state like India with a population that India has—is a gigantic undertaking.
Around 75 percent of Adani shares are held by other businesses, according to Hindenburg Group, which are in a sense simply postbox entities situated in offshore places like Mauritius. And the significance of that is not only that it brings paper gains for the holdings of the key members of the family, but much more importantly, what it enables them to do is to leverage those high stock values, to get bank loans and to get credit, which then turns into real purchasing power with which you can then launch large investment projects, buy out rivals, and actually reshape India’s political economy.
Now the Hindenburg group in pursuing this case is, in a sense, involved in playing a game in India that it has played elsewhere. They’re an interesting, very small research outfit that specializes in doing—I’m not sure I would call them regulators. It’s a little bit more like a private investigator kind of work. They seize on a cause. They then decide that a company is massively overvalued. They do their homework. They then take short positions and through the force of their research attempt, as it were, to drive the value of the firm down, which generates large profits on their short positions.
The Adani Group has vigorously disputed the allegations.
(Excerpts from podcast: Ones and Tooze. Courtesy: Foreign Policy)
