Adani row: SC-appointed committee says not found regulatory failure, Sebi probe drew blank

New Delhi: In a relief to embattled billionaire Gautam Adani, a Supreme Court-appointed expert committee said it has found no evidence of stock price manipulation in Adani group companies, while a separate Sebi probe into alleged violation in money flows from offshore entities has "drawn a blank".

The six-member panel, however, said there was evidence of a build-up in short positions on Adani Group stocks ahead of the report of US-based short seller Hindenburg Research that alleged fraud, stock manipulation, and money laundering at the apples-to-port group. Profits were earned from squaring off positions after prices crashed post-publication of the damning allegations.

Financial crime-fighting agency Enforcement Directorate (ED) "found intelligence about potentially violative and concerted selling by specific parties just ahead of the publication of the Hindenburg report, and this may lead to credible charges of concerted destabilisation of the Indian markets, and Sebi ought to be probing such actions under securities laws," it said citing a response from ED.

Suspicious trading has been observed on the part of six entities. Of these, four are FPIs, one body corporate and one individual.

The committee, headed by former Supreme Court judge Justice AM Sapre, in its 173-page report, said that based on the data from the stock market regulator Securities and Exchange Board of India (Sebi), it saw "no evident pattern of manipulation" in the steep stock price rise in billionaire Gautam Adani's companies that can be attributed to "any single entity or group of connected entities".

It was not possible to conclude whether there had been regulatory failures regarding price manipulations, the panel said in the report.

After the Hindenburg report stirred a political row and triggered a rout in the conglomerate's stocks, dethroning Adani as the world's third richest man, the Supreme Court had on March 2 constituted the expert committee to investigate if there was any failure to disclose transactions with related parties and if stock prices were manipulated.

The committee was to work in parallel with the probe by Sebi into offshore entities investing in the Adani Group. The regulator was first asked to complete the probe in two months and then given another three months till August 14.

These three were at the core of the allegations that Hindenburg had levelled against Adani.

While the report is not the final word, it certainly comes as a relief for Adani's empire. All 10 Adani Group stocks rose after the report was made public, ending between 1.2 per cent to 7 per cent in late trade.

Flagship Adani Enterprises Ltd and Adani Ports and Special Economic Zone Ltd recovered the day's losses and jumped 3.5 per cent each.

The panel in its report said Sebi has "drawn a blank" in investigations into suspected violations in overseas investments in the Adani group and pursuing the case could be a "journey without a destination".

"The foundation of Sebi's suspicion that led to investigations into the shareholding of the foreign portfolio investors (FPIs) in the Adani-listed companies is that their ownership structure is "opaque"," it noted. This is because "the ultimate chain of ownership above the 13 overseas entities holding Adani Group stocks is not clear".

Sebi has found 42 contributors to the assets under the management of the 13 overseas entities and has been pursuing various avenues to ascertain the same.

"It has been a long-standing suspicion of Sebi that some of the public shareholders are not truly public shareholders and could be fronts for the promoters of these companies," it said.

Yet, despite involving various Indian and overseas agencies in the investigation across multiple countries, "Sebi has drawn a blank", it said, adding that trying to prove who had invested in the foreign portfolio and investors who then pumped money into Adani could be an arduous task.

While the FPIs in question made declarations of the beneficial owner by identifying the natural persons controlling their decisions, a 2018 law had done away with the very requirement to disclose the last natural person owning any economic interest in the FPI.

Sebi has been investigating the ownership of the 13 overseas entities since October 2020.

"The securities market regulator suspects wrongdoing but also finds compliance with various stipulations in attendant regulations. Therefore, the record reveals a chicken-and-egg situation," it said.

Prior to the Hindenburg report, which erased about USD 145 billion in the conglomerate's market value at its lowest point, the Adani Group stocks climbed more than 1,000 per cent since early 2020, pushing the conglomerate's combined market value to a peak of USD 288 billion in September. The combined market capitalisation of the Adani Group is now close to USD 160 billion.

The runaway rallies in the seven long-standing Adani Group firms - excluding last year's acquisitions of two cement companies and broadcaster NDTV - however, stoked concerns, including by Hindenburg, that there was a concerted effort by certain entities to bid up valuations.

The Adani Group has denied all the charges as lies, saying it complies with all laws and disclosure requirements.

Sebi is investigating alleged breaches of related-party transaction rules, public shareholding norms and share price manipulation.

"It is evident that such an exercise could be a voluminous one but potentially a journey without a destination," the panel said. " ... it would be a humongous task to figure out who the ultimate beneficial owner is." The committee said that the market has re-priced and re-assessed the Adani stocks.

"While they may not have returned to the pre-January 24 levels, they are stable at the newly re-priced level," it added.

The committee noted that as per empirical data, retail investors' exposure to Adani stocks increased after January 24, 2023. And on this basis, it concluded that the Indian stock market as a whole was not unduly volatile during the period under reference.

"The volatility in the Adani stocks was indeed high, which is attributable to the publication of the Hindenburg report and its consequences," the report said.

The Adani Group has been working on a comeback strategy that includes repaying some debt, buying back some bonds, infusion of fresh investment by way of a nearly USD 2 billion stake buy by a private equity investor, and a planned Rs 21,000 crore fundraising by two group companies.