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Next to Indian billionaire Gautam Adani's vast industrial empire, the short seller Hindenburg Research looks like "a peashooter," said The Economist. But the small New York–based fund's report, accusing the Adani Group of "the largest con in corporate history," had by last week wiped out more than $110 billion of his companies' value and toppled him from third place on the global rich list. It has also called into question India's "tycoon-powered version of capitalism," championed by Prime Minister Narendra Modi. Adani's multibillion-dollar projects, ranging from ports to power stations, "were the cornerstone of Modi's plan to turn the country into a global clean-energy powerhouse." Now Western multinationals will likely "think twice" about any partnerships with Adani or his fellow Indian tycoons.
The "storm surrounding Adani" comes during "a proud year" for India, as it overtakes China as the world's most populous nation and chairs the G-20 group of leading economies, said John Reed and Benjamin Parkin in the Financial Times. The Adani Group has portrayed Hindenburg's report as "a calculated attack on India; the independence, integrity, and quality of Indian institutions; and the growth story and ambition of India." And indeed, the ascent of Adani, who dropped out of school to work in Mumbai's diamond business, parallels the ascent of Modi and India's governing party. Both Adani and Modi come from the Indian state of Gujarat. Early on, Adani became one of Modi's strongest backers, building a local industrial empire that helped Modi "sell Gujarat as an economic model for India." When Modi was elected to national office, he flew on an Adani jet.
Adani has worked "hand in glove" with the government to advance the priorities of Modi and his party, said Stacey Meichtry in The Wall Street Journal. India has routinely used "large government subsidies to fund infrastructure construction by private firms such as Adani's." Now, that "symbiosis" is being tested. A key question is whether Adani's troubles will dent Modi's massive plans to revamp the country's transport and energy infrastructure, said Alex Travelli in The New York Times. Adani is closely involved in one of his pet projects to turn India into a global "green-power hub." But "fraud and failure are hardly the image that Modi or India wants to convey," especially with the country "freshly minted as the world's fifth-largest economy."
The Hindenburg-Adani battle is a "master class in financial globalization," said Andy Mukherjee in Bloomberg. Without "a single dollar in the Indian market," which makes short selling nearly impossible, Hindenburg, which bet against Adani's U.S.-traded bonds, punctured Adani's "aura of unassailability." The Adani Group has thrown everything it has at Hindenburg, even comparing the attack on Adani to the 1919 massacre of Indians by British soldiers. This has backfired; in fact, the Adani Group's 413-page rebuttal amounted to "information overload." Adani's strongest backers now may come from India's billionaire class, which has banded together as an "impromptu national team." That "bromance" between the economy's "bigwigs" watching out for each other's interests should worry India as much as any of Hindenburg's claims.
This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.