When the Hindenburg airship went down in 1937, the disaster was especially dramatic for a couple of reasons. The German passenger airship’s trip was being closely followed by the public and the media when it caught fire over Boston. As a result, the fire and the collapse were photographed by news crews. In a rare event, a voiceover was also recorded over the newsreel, giving people a play-by-play. The infamous accident, which killed 35 of the 97 people on board, marked the end of the hydrogen airship.
In the age of internet and live-streaming, the explosive Hindenburg report about the Adani Group sparked its own fire. The report from the US short-seller alleges that the Adani Group is filled with hot air, fuelled by debt and offshore shell companies. In the PR battle that followed, the corporate alleged that the report was a “concerted attack against India”. The spin was widely ridiculed online and had to be abandoned.
The fallout in India has been contained so far. Finance Minister Nirmala Sitharaman asserted that the regulatory environment in India was strong, and SEBI has so far been mum about any investigations into the allegations. The fallout internationally has been more severe, with Credit Suisse, the Citigroup and Standard Chartered no longer accepting Adani bonds as collateral against margin loans, and Moody’s noting that the group may find it harder to raise funds in the next couple of years.
The globalisation of stock markets has seen many international investors pouring money into listed companies in India and China. Both international bond holders and blue-chip investors held Adani stocks and bonds. This included Norway’s largest pension fund KLP, which had holdings in Adani Green Energy as part of its ESG investments. (It has exited these).
Analyst Shuli Ren pointed out last week that the reason so many international investors invested in Adani company debt is that companies like Adani Ports and Adani Transmission are rated “investment grade”, drawing investors who put money in low-risk corporate debt. But as the crisis spiralled, these investors quickly pulled out.
India has been trying to set itself apart from China as a stable democracy that is well-regulated and welcoming of foreign investments. The truth is more complicated. The Adani crisis has thrown a spotlight on our business environment.
The reality is that the “Infosys” model is not a common one among India’s listed companies―more than 90 per cent of India’s listed companies are family owned and have sons, daughters and cousins in senior management, and extended families holding large percentages of the shares. The Ambani and Adani empires have dominated India’s infrastructure spending―over just two years, Adani Ports has reportedly bought three Indian seaports for $2.6 billion.
Studies show that family-owned businesses tend to be less transparent and have weaker governance, and perform worse than non-family owned companies. This makes it essential for regulators and governments to keep them at arm’s-length and examine the holding structures and disclosures of these companies more closely. It should not take a US-based short-seller to wake us up.
Rather than looking the other way and reviving the old accusations of “foreign hand” or “jealousy for India”, we should focus on bringing the reality closer to our rhetoric of being a “well-regulated, transparent democracy”. Else our claims will sound like just more hot air.
The writer, a Chevening fellow from London School of Economics, is co-founder and CMO of Trendlyne.com and was in the founding group for Aadhaar with Nandan Nilekani.