Foreign Jeff Bezos To become the second richest person in the world with a net worth of 150 billion dollars! Gotta Madani is the founder and chairman of the Adani Group, a massive India-based industrial conglomerate with over 20 billion dollars of Revenue and over 100 000 employees worldwide. The Adani Group is made up of seven publicly traded companies which are listed on the National Stock Exchange of India. The Adani Group is wide reaching, touching almost every part of the Indian economy. Their business activities include but are not limited to the operation of ports, thermal power generation, consumer goods, and real estate brokerage. Services The most impressive thing about Gautam Adani's wealth is how fast he created it. In 2019, he was the world's 206th richest man with the measly net worth of just seven billion dollars. For most of the past decade, his wealth had ranged between 5 and 10 billion dollars, but starting in 2020, his net worth exploded, culminating in him becoming the world's second richest man by September of 2022. The vast majority of Gautam Adani's wealth is represented by his approximately 75 ownership stake in the Adani Group. Over the past three years, all of the Adani's talks have experienced monster rallies. Between 2020 and 2022, the share price of Adani Enterprise increased 17.5 fold; a dining green energy increased nine-fold The worst performing stock of the group was Adani Ports, which only doubled. The substantial increases in share price have pushed the Adani companies to very high valuations, with their price to earnings ratios ranging from 29 for Adani Power all the way up to 831 for Adani Total Gas. The average price to earnings ratio of the Indian Sensex index is 22. Adani gas is 831 p E appears Rich to say the least. in January of 2023, Adani Enterprise decided to take advantage of their High share price by selling an additional 200 billion rupees or roughly two and a half billion dollars worth of new stock to Public Market investors. The issuance was scheduled to take place between the 27th and 31st of January on January 24th, just days before the share issuance was scheduled to begin. The infamous Short Selling Firm Hindenburg Research released a bombshell report accusing Adani of being the largest fraud in corporate history. The short report caused the price of Adani Enterprise and other Adani stocks to plunged by almost 20 percent, wiping 30 billion dollars off of Gotta Madani's net worth in a matter of less than a week. So what is going on in this video? We'll look at how Gautama Dani became Asia's richest man and whether or not his business Empire is a House of Cards foreign. If you look at the list of the 20 richest people in the world, almost all of them fit into two categories: People who founded Mega Cap technology companies, or people who inherited their wealth. In general, technology companies are capital lay. Once you create a new software or social media platform, it is almost infinitely scalable, which allows it to grow very fast. That's how Mark Zuckerberg went from creating Facebook in his dorm room to becoming a billionaire in the matter of just a few years. There are a few people like Warren Buffett Mexican Telecommunications Tycoon Carlos Slim Lvmh chairman Bernard Arno an Indian oil refining magnet Mukesh Ambani who have reached the top 20 billionaires list via more traditional Industries for all four of the billionaires I Just mentioned, they built their fortunes slowly over the course of decades. If you're building oil refineries or telecommunications systems, these take a long time to build and many billion dollars of investment. You start off small and reinvest the profits into more infrastructure. Even with the help of Leverage, it generally takes decades to build a multi-billion dollar fortune. In the case of Adani. They started off as a Commodities trading business. They set up port in India which they used to import coal and other resources. After the reports were successful for Adani expanded into new business areas, building things such as coal-fired power plants and electric transmission infrastructure. Over the years, they expanded even further into renewable energy infrastructure Natural Gas Distribution and cement production. With few exceptions. All Vidani's business activities were concentrated into Capital intensive, slow moving, and well-established Industries These are not the types of businesses that you would generally expect to increase 15-fold in less than three years, Taking Gano Maldani from the world's 200th richest man to the second richest. The most similar billionaire to Gotta Modani is probably Elon Musk The automobile industry is also Capital intensive and generally slow moving. Nevertheless, Tesla's share price experience in meteoric rise in recent years, boosting Musk's net worth to stratospheric levels. In hindsight, the increase in Tesla's share price in 2020 and 2021 was the result of a speculative bubble between 2019 and 2021. Tesla's share price increased 25-fold During the same period, their revenue only doubled. You could conceivably make the argument that the company was undervalued in 2019 and only reached fair value in 2021. but clearly, the increase in share price was not driven entirely by an increase in fundamental value of the business itself. Similarly, Adani Enterprises 28-fold increase from 2020 through 2022 did not correlate to a 28-fold increase in its fundamental value. Of course, speculative stock market bubbles are not illegal. Hindenburg is not just saying that Adani is overvalued, he is accusing them of fraud. We'll have to dig a Little Deeper to see whether these allegations have any. Merit Good. Let's look at Adani Enterprises the flagship of the Adani group. It's a diversified business, but the majority of its Revenue comes from its integrated Resource Management segment which primarily engages in the import of coal and other Commodities into. India. From 2018, Adani Enterprises Revenue was roughly flat, but over the past two years it has skyrocketed. Based on the current run rate, They're on track to generate 1.6 trillion rupees of Revenue in their fiscal year 2023, a 300 increase compared to fiscal 2021. As an aside, Adani has a weird fiscal year. Fiscal 2023 is a 12 months ended March 31st 2023. Net income is on track to reach almost 19 billion rupees, more than double fiscal 2021 levels. 19 billion Rupees is worth a little over 200 million dollars at current exchange rates. It's quite shocking that Dani was able to achieve such extraordinary levels of growth given the fact that Revenue was largely stagnant in Prior years and it all comes down to the price of coal. In 2018, the Indian government liberalized the coal market and started auctioning off coal mining land to private companies. Adani became one of the biggest beneficiaries of this policy, buying up huge amounts of coal rich land and becoming one of the largest coal producers in the country. During in 2022, the price of internationally traded coal skyrocketed to more than five times its normal levels due to increased demand from the EU in China a dining Enterprise was one of the chief beneficiaries of this. At first, it doesn't seem too weird The increased price of coal provided a windfall for the Adani group, thereby propelling Gautam Adani to become the second richest man in the world. But things start to get weird when you look at valuations Commodities tend to trade in Cycles when prices become unusually high, new Supply comes online, which will eventually push prices down to more normal levels. Thus, the extraordinary profits that commodity producers earn at the peaks of Cycles are not sustainable. Because of this, investors tend to assign very low price earnings multiples to commodity producers. When commodity prices are high, Pull is no exception. Take the example of Gujarat Mineral Development another Indian coal mining company. It has a trailing price earnings ratio of 5.5 Adani Enterprises has a trailing price earnings ratio of 263. Before the Hindenburg Short report was released, its price to earnings ratio was in excess of 300. 300 times earnings for a commodity company at the peak of a commodity cycle is almost unheard of. So what is going on according to Hindenburg Adani Sky High valuation is no accident. It is the result of a highly sophisticated Market manipulation and accounting fraud scheme orchestrated by the Adani family. As a disclaimer, the remainder of this video is based primarily on information in the Hindenburg Short reporter. Hindenburg has a short position in Adani, so they clearly have a conflict of interest. The Adani family and everyone else mentioned deserve the presumption of innocence, and none of the allegations in Hindenburg's report have been proven in a court of law. Nevertheless, given the gravity of the allegations, we feel it is worth looking into. In India is not allowed for insiders to own more than 75 percent of shares outstanding of a publicly listed company. The idea is that if insiders own too many of the shares, they may be able to manipulate the stock or otherwise enrich themselves at the expense of other stakeholders. For most of the Adani companies, Ghana Madani and other insiders are barely shy of the 75 threshold. For example, insiders own 74.97 of Adani Power Limited and 74.8 percent of Adani Total Gas. Additionally, a significant number of shares are owned by offshore shell companies, which Hindenburg believes are controlled by the Adani family. If Hindenburg is correct, multiple of the publicly traded Adani companies would be in violation of Insider ownership rules. Meridius is an island nation off the eastern coast of Africa. It is a small country with a population of 1.2 million, but it has become one of the richest countries in. Africa in large part due to its status as an offshore tax. Haven Hindenburg Identified multiple Meridius-based companies that collectively own almost 7 billion dollars worth of shares. Enlisted Adani Companies: These companies hold very few publicly traded assets besides Adani shares. For example, the Alara India Opportunity Fund manages three billion dollars, of which almost 99 percent isn't Adani stocks. For an investment company to invest 99 of its portfolio into one conglomerate is highly unusual, to say the least. It's pretty obvious that these Meridius funds are not normal investors, but why would someone go through all the trouble of setting up offshore shell companies just as a place to park their Adani shares? According to Hindenburg, these companies were run by people with prior connections to the Iranian group. presumably they were indirectly controlled by the Adani family. They set up shell companies to hide their shareholdings and thus avoid violating the 75 Insider ownership rule. The suspicious transactions don't end there. Vino to Dani is the brother of founder Gotta Madani. He does not hold any official role at the Adani Group, but he nevertheless appears to be actively involved with his brother's companies. According to Hindenburg Vino set up numerous shell companies and tax Havens including Meridias, Cyprus and the UAE. In an effort to make these companies look legitimate, he set up corporate websites for each of them. The websites claimed that these companies were engaged in vague and generic business activities such as cross-border trade consumption abroad and Commercial presence. Most of the websites do not list any employees and there do not appear to be any employees on LinkedIn or any similar websites. The only photos they have are generic stock images. It's pretty clear that these are shell companies. So what was Vino doing with these shell companies? One of V-node's entities was called Emerging Market Investment Dmcc. It was registered in Dubai and on its website it says it exists solely to invest Vino's funds in Emerging Markets According to Hindenburg, this Dubai Shell company lent one billion dollars to a subsidiary of of Adani Power. The suspicious transactions don't end there. In 2015, Adani Enterprises lent money to Aveeno to dining controlled company called Carmichael Rail. It then used the money to acquire a work in progress asset from Adani Enterprise for 150 million Australian dollars Carmichael Rail almost immediately recognized a 23 million write down on the assets. It looks like Adani Enterprise was shifting its asset impairments to this V-node controlled entity to protect its reported net income. If what Hindenburg is saying is true, it looks like Vinode made a huge number of opaque shell companies. These shell companies lend huge amounts of money to Adani companies and engaged in some other weird transactions which appeared to have benefited on the Enterprise. This begs two questions: How did Vino get so much money to lend to his brother's companies and why did he do it? Foreign s Adani Power is building a massive electric utility project in India worth hundreds of millions of dollars. In 2009, they sold a 26 stake in the project to a company called Grow More Trade for 128 million dollars. Just two years later, in 2011, Adani Power bought back the 26 stake in a 531 million dollar all-stock transaction. This gave Grow More a 400 million dollar profit. The sole director of Grow More was a Taiwanese man named Chong Chung Ling. Why would a Donny Power Cell stake in its power plant for 128 million dollars just to buy it back two years later for four times the price according to regulatory filings by the Indian Department of Revenue intelligence. Chong lived in a property in Singapore in 2000 that just one year earlier was occupied by V-node This could be a coincidence, but the relationship between the Adani and Chong families gets even more interesting. Chong Chung Ling's son Chong Chan Ting owns a company called PMC Projects. PMC Projects is a construction contractor that received hundreds of millions of dollars from a dining company to help them build ports. Multiple PMC Projects employees appeared to believe that PMC is owned by Adani, presumably because they only work on Adani Project, but Adani shareholders are not beneficiaries of Pmc's profits. Chong Chan Ting is as if PMC wasn't Shady enough already. Their LinkedIn page currently says quote: I intend to deactivate this page please unfollow unquote. If what Hindenburg is saying is true, it looks like the Adani Group had become a giant slush fund for the Adani family and their Close Associates. And this brings us back to the massive rally that we've seen in the share prices of the Adani companies and their apparent overvaluation. All of those Meridius Shell companies that purchased billions of dollars worth of Adani stock were pumping up the price assuming that Hindenburg is correct, and these Shell companies were at least indirectly controlled by the Adani family. Pumping up the stock was presumably their intention, but why would they want to do this? On the surface, this whole operation seems like a self-defeating plan. The Adani family can build massive paper wealth by artificially inflating the share price, but given the small free flow The moment they start cashing out, the entire house of cards could come crumbling down. Selling shares isn't the only way for billionaires to realize their wealth. In fact, many billionaires go to Great Lengths to avoid selling shares in the companies that they founded, as this would incur massive capital gains taxes. If a billionaire wants to spend some of their net worth instead of selling their shares, they could instead borrow money from a bank using their shares as collateral. For example, Elon Musk has borrowed tens of billions of dollars against his Tesla shares. This has allowed him to save billions of dollars by deferring capital gains taxes. It appears that the Adani family has followed a similar strategy. According to data compiled by Hindenburg Adani insiders, which presumably includes the Adani family, have pledged billions of dollars worth of shares to take out loans. Potentially, the Adani family borrowed money using their shares as collateral to buy more shares via the opaque Meridius Shell companies. This pumps up the value of the shares, allowing them to borrow even more money. While this is little more than informed speculation, it's hard to think of any other way that Meridius Shell companies were able to acquire so many shares. And it's not just the Adani family. The Adani Group itself is also highly leveraged. According to the market research firm Credit Sites, almost all of the Adani companies have debt to equity ratios in excess of 100 a Donny Green Energy has a debt to income ratio of 2 000. In layman's terms, that is a lot of debt. The huge amounts of money that borrowed allowed the Adani Group to grow its business Empire immensely over the past decade. But why were the banks willing to lend them so much money? The fact that the share prices were skyrocketing certainly didn't hurt if any of the Adani companies ran into liquidity issues. They could presumably issue new shares to raise Capital but the high share price may be little more than a mirage. Of course, we don't know if the allegations in the Hindenburg short report are true. Adani categorically denies the allegations and has threatened legal action against the short seller. At the end of the short report. Hindenburg Poses 88 questions to the Adani Group, asking them to explain the alleged anomalies that they uncovered. As of the time of recording this video, Adani has not publicly responded to any of them. Alright guys, that wraps it up for this video. What do you think about the Adani Group? Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one. Wall Street Millennial Signing out.

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