Jo Johnson, the investment bank and the Adani allegations

Well, well… Lord Jo Johnson has abruptly resigned as a director of an investment bank with links to Indian business magnate Gautam Adani, after less than a year on its board.

Lord Johnson, the younger brother of former prime minister Boris Johnson (and a former FT journo), resigned from Elara Capital on February 1st, according to Companies House records. That was after FT Alphaville contacted him for comment and visited Elara’s offices on Tuesday, and was politely but swiftly shown the door.

Short-seller Hindenburg Research has alleged that London-based Elara, a major investor in Adani’s listed businesses, used Mauritius-based funds to hide the ultimate ownership of Adani shares.

Adani — which has seen losses on its stocks pass $100bn since the report’s publication — denies the allegations, while Elara and Johnson have not responded to questions from Alphaville and the FT on the subject.

UPDATE: Jo Johnson replied following the publication of this article, telling the FT:

I joined the board of Elara Capital, an India-focused investment firm based in London, as an independent non-executive director last June in the hope of making a contribution to UK-India trade and investment ties, which I have long supported and co-written a book about. I have consistently received assurances from Elara Capital that it is compliant with its legal obligations and in good standing with regulatory bodies.

At the same time, I now recognise that this is a role that requires greater domain expertise in specialised areas of financial regulation than I anticipated and, accordingly, I have resigned from the board. 

Johnson baby

It is the second time Johnson has recently resigned from a company position, have quit as an advisor to Bifinity, a UK payments business backed by the crypto exchange Binance last year. These (very) short-lived gigs stand in pretty sharp contrast to Johnson’s otherwise charmed portfolio career.

Born in 1971, the youngest (full) brother of former Prime Minister Boris Johnson started out at Deutsche Bank as an investment banker, became a Financial Times journalist — eventually heading Lex (“one of the most influential positions in British financial journalism”, per Wikipedia) — then a Tory MP, then a minister and eventually, with thanks to big bro, a Lord.

Even after his shift into the Upper House, JoJo has continued to dabble in different roles, with some 👀 results. In December, in the aftermath of FTX’s collapse, the Telegraph reported he had stepped down from a role advising Bifinity, a payments company backed by crypto exchange Binance. It looked like a case of wrong place, wrong time — who knew crypto was risky?

Another post-Commons job took him back to his roots. Elara Capital — a London-based investment bank — announced last June that Johnson had joined its board of directors. Speaking at the time, its chair Raj Bhatt said “Elara Capital will benefit from Jo’s experience and also seek his guidance on investments in interesting growth sectors like technology and education.”

Here is some other recent news that concerns Elara:

Indian billionaire Gautam Adani broke his silence and defended his industrial empire despite a cancelled $2.4bn share sale in the wake of a short-seller attack.

Losses for Adani Group stocks escalated to $100bn on Thursday after the conglomerate’s flagship company called off the equity issue, saying it would “not be morally correct” to proceed given the stock wipeout.

Adani is reeling from allegations by US-based Hindenburg Research. You can read all the FT’s coverage here.

Some prominent allegations by Hindenburg concern Elara, which was one of the bookrunners on Adani’s now-abandoned share sale. Per its report:

— A former trader for Elara, an offshore fund with almost $3 billion in concentrated holdings of Adani shares, including a fund that is ~99% concentrated in shares of Adani, told us that it is obvious that Adani controls the shares. He explained that the funds are intentionally structured to conceal their ultimate beneficial ownership.

This looks unfortunate for Johnson. Alphaville has contacted Elara for comment, while Adani denies Hindenburg’s claims.

Early this week, we went searching for answers.

Westward Jo!

In an attempt to dispel its reputation for being overly online, FT Alphaville paid Elara’s London office a visit on Tuesday afternoon. A short trip on the Central and Bakerloo lines took us into the mildly fresher air of Marylebone.

Elara is based at 248 Marylebone Road, around the corner from the train station made famous by 2022’s seminal Your Christmas or Mine?

We asked to go to Elara’s office, and the receptionist sent us up to the building’s top floor, six. A nondescript lobby with a wavy green piece of artwork piece greeted us:

Through the (unlocked) door was a brightly-lit corridor with several fishbowl-style rooms leading off. In the first room three people were gathered around a Bloomberg Terminal.

Was anyone able to answer questions about the relationship between Elara and Adani? A man ushered us into a kitchen space, where we were told to wait. Shortly after, he returned, gave his name as Ahmed, but declined to provide a surname. Ahmed told FTAV there was nobody in the office who could answer our questions at that time, and politely suggested that we should leave.

On the short walk back to the lift, Alphaville showed Ahmed a printed picture of Jo Johnson and asked if he’d ever been spotted in the office. Ahmed said he did not recognise the man but observed that he looks a lot like Boris. We left.

Elara? (I hardly even know her)

Raj Bhatt founded Elara in 2002. The group’s website says it “was established primarily as a capital markets business, raising funds for Indian corporates through GDR’s, FCCB’s and the London AIM market”.

It has since expanded into M&A and private equity advisory, brokerage and asset management. In addition to London it has offices in New York and Singapore, two in India, and one in Mauritius, per its website.

Elara’s relationship with Adani had attracted attention long before Hindenburg last week released its report. A July 2021 Bloomberg story (non-paywalled link via Al Jazeera) said:

Four Mauritius-based funds that have attracted attention for parking almost all their money in companies controlled by Indian billionaire Gautam Adani have a history of investing in firms which ended up defaulting or were investigated for wrongdoing.

One of these funds was Elara’s India Opportunities Fund, a $2bn fund (as of midday Wednesday) that predominantly holds Adani businesses:

An allegation being made by Hindenburg is that four of Adani’s listed businesses are on the brink of breaking Securities and Exchange Board of India rules limiting insider ownership to 75 per cent of below. Crossing this threshold could lead to them being delisted.

Hindenburg alleges that funds such as Elara’s India Opportunities Fund are being used to skirt this rule, by disguising the actual level of insider ownership:

For many Adani listed companies, a large portion of their “public” shareholders are funds based in the opaque jurisdiction of Mauritius. Importantly, funds identified in this section, which we believe should be classified as “promoter” (insider) entities, hold enough shares of Adani listed companies to put four of them well over the 75% threshold, triggering delisting.

Adani strongly denies the allegations made by Hindenburg, saying:

Each of the entities referenced in queries above are public shareholders in the listed companies in the Adani Portfolio. Innuendoes that they are in any manner related parties of the promoters are incorrect.

A listed entity does not have control over who buys / sells / owns the publicly traded shares or how much volume is traded, or the source of funds for such public shareholders nor is it required to have such information for its public shareholders under laws of India. Hence we cannot comment on trading pattern or behavior of public shareholders.

You can read Adani’s full, 413-page response here.

Read more:
— Jo Johnson quits as director of UK firm with Adani ties
— ‘Extreme leverage’? Adani’s debt-driven expansion under scrutiny
— “Myths of Short Seller”

Read the full article Here

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