What happened in SEBI’s investigation on Adani so far?

12:11 PM Aug 31, 2023 IST | Ground Report

Securities and Exchange Board of India SEBI investigated Adani Group and found rule violations regarding disclosures by listed entities and limits on offshore fund holdings. The inquiry followed US-based Hindenburg Research's questions on corporate governance in a January report on Gautam Adani-led Adani Group.

After Hindenburg's allegations, the Adani group lost almost $100 billion in market value. The company has denied the allegations. Reoports suggest the violations are more "technical" in nature. Once the investigation concludes, penalties might be limited to monetary fines.

The Enforcement Directorate (ED) has reportedly found that around a dozen companies, including foreign portfolio investors (FPIs) and foreign institutional investors (FIIs) based in offshore tax havens, were the primary beneficiaries of short selling in Adani Group shares following the Hindenburg Research report and the subsequent market downturn.

Short selling involves investors betting that share prices will drop, borrowing shares to sell and then buying them back at a lower price to make a profit. The ED's findings were shared with the market regulator, Securities and Exchange Board of India (SEBI), in July.

As per Indian Express, a few of these short sellers assumed positions shortly before the release of the Hindenburg Research report on January 24, while others were novices in short selling. Among the entities, three are from India, four from Mauritius, and one each from France, Hong Kong, the Cayman Islands, Ireland, and London.

After reviewing files from multiple tax havens and internal company emails, the nonprofit media organization OCCRP uncovered instances where investors reportedly used offshore structures to purchase and sell Adani stock.

Eight months ago, US-based short-seller Hindenburg Research made allegations accusing the Adani Group of improper business dealings, including the use of offshore entities in tax havens. This report follows those allegations.

Timeline of events

January 24: Hindenburg Research report alleges Adani Group of stock manipulation and accounting fraud, released just before Adani Enterprises' Rs 20,000-crore FPO.
January 26: Adani Group plans to sue Hindenburg Research, alleging malicious report affecting shareholders and market volatility.
January 31: Despite market price below issue price, Adani FPO subscribed 1.12 times with corporate and foreign investor support.
February 1: Adani Group cancels fully subscribed FPO due to extraordinary circumstances and investors' interests.
February 14: SEBI notifies Supreme Court of inquiry into Hindenburg report and market activity related to Adani Group.
March 2: Supreme Court forms expert committee to investigate regulatory failure in handling Adani controversy.
March 2: Supreme Court instructs SEBI to investigate minimum public shareholding norms, related party transactions, and stock price manipulation.
April 29: SEBI seeks 6-month extension for complex probe, cites complexity of transactions in Hindenburg report.
May 15: SEBI clarifies no probing of Adani Group since 2016, no relation to Hindenburg report allegations.
May 17: Supreme Court extends SEBI probe deadline to August 14, expert committee to assist.
May 19: Expert committee states SEBI investigations on FPIs economic interest in Adani “a journey without destination.”
July 10: SEBI assures Supreme Court its rule changes aid identification of offshore fund beneficiaries.
July 11: SEBI faces challenges in identifying actual controllers of FPIs due to jurisdiction ambiguities.
July 11: SEBI progresses in investigations, 17 of 24 cases finalized and approved.

SEBI's Adani probe nearing completion

On Friday, SEBI informed the Supreme Court that its investigation of Adani Group's transactions is nearly done. Adani Group didn't reply to Reuters' request for comment on SEBI's findings on Monday. The email to SEBI remains unanswered.

News18 report reveal that a significant discovery in the investigation concerns not disclosing certain transactions with related parties. The source emphasized that these transactions need to be recognized and reported. If not, it might misrepresent the financial status of the Indian-listed company. However, Reuters hasn't disclosed the specific companies SEBI looked into.

SEBI, in its submitted documents to the court, stated it has examined 13 cases involving related party transactions. Sources mention that the maximum penalty per company for each violation could amount to Rs 1 crore ($121,000).

The investigation also revealed discrepancies in offshore funds' ownership of certain Adani companies, not complying with regulations. Indian law permits offshore investors to invest a maximum of 10% through the FPI route. Any investment that surpasses this threshold falls under the category of Foreign Direct Investment (FDI). Sources indicate that some offshore investors may have inadvertently surpassed this limit.