Indian market regulator has ‘hit a wall’ in Adani probe

An investigation by India’s market regulator into offshore shareholders in tycoon Gautam Adani’s companies has “hit a wall”, according to a committee convened by the country’s top court.

The Securities and Exchange Board of India, the country’s securities regulator, started its investigation into offshore entities with holdings in Adani companies in 2020, but scrutiny of them intensified this year after US short seller Hindenburg Research accused Adani of stock price manipulation and fraud.

Following the allegations, which Adani has strongly denied, a Supreme Court-appointed panel of lawyers, former bankers and business executives were asked to examine whether the regulator had failed to spot any possible wrongdoing by the Adani companies.

According to an interim report by the committee, a copy of which was seen by the Financial Times, Sebi had “drawn a blank” in its investigation into 13 offshore entities it considered suspicious.

The 173-page report, which draws extensively on briefings given by Sebi, said it could not yet conclude that there had been any regulatory failures and added that no pattern of share price manipulation had been found by Sebi.

Hindenburg Research alleged that “offshore shells and funds tied to the Adani Group comprise many of the largest “public” […] holders of Adani stock”. Under stock exchange rules, at least 25 per cent of the shares of a publicly listed company must be held by investors without ties to the group.

“It has been a longstanding suspicion of Sebi that some of the public shareholders . . . could be fronts for the promoters of these companies,” the committee’s report said, adding that “the ultimate chain of ownership above the 13 overseas entities holding Adani Group stocks is not clear”.

Neither Adani nor the regulator immediately responded to requests for comment on the report.

As part of its investigation, Sebi has enlisted help from law enforcement agencies and regulators across seven jurisdictions, the report added.

The Supreme Court has given Sebi until the middle of August to complete its probe, extending a two-month deadline it gave in March. Sebi’s investigation will also examine Hindenburg’s allegations of possible stock price manipulation and violations of related party transaction rules.

Pursuing the identity of the offshore shareholders was “potentially a journey without destination”, for Sebi, the report said, describing it as a “humungous task”.

The claims from Hindenburg, a New York-based short seller, at one point wiped $150bn from the combined market value of Adani’s listed companies and forced the group to abandon a $2.4bn share sale.

Shares in the Adani groups have since clawed back some of those losses and Adani Enterprises, the billionaire’s flagship company, gained nearly 4 per cent on Friday.

The report also said that international banks, including Goldman Sachs and JPMorgan Chase, had turned down the committee’s call for advice on cross-border transactions, with some citing “conflicts of interest owing to commercial relationships with the Adani Group”.

JPMorgan declined to comment and Goldman did not immediately respond to requests for comment.