As the Adani saga gets murkier, India's parliament must step in
A new report, based on a secret paper trail, documents a decade of regulatory inaction against alleged corporate governance lapses at the infrastructure behemoth.
To those who have long-held suspicions about the source of funding behind the meteoric rise of Gautam Adani, an infrastructure tycoon from Indian Prime Minister Narendra Modi's home state of Gujarat, Thursday's Financial Times scoop based on a secret paper trail tells the story of a hijacking — a capture of weak regulatory institutions by a powerful business interest.
To those on the other side of India's political divide, the latest twist in the corporate governance saga is nothing but early evidence of an "innate anti-India ecosystem in the West." There's only one way for the Modi government to end this debate, or at least be seen to be settling it before next year's general elections: Order a joint probe by lawmakers who hold one or the other view.
When news leaked last week that one or more international publications was pursuing Adani-related documents given to it by the Organized Crime and Corruption Reporting Project, a section of the Indian media rushed to establish that the Hungarian-born billionaire investor George Soros's Open Society Foundations supports the OCCRP, as do the US Department of State and the Ford Foundation. These links aren't a secret. They can be easily seen on the organization's website. But putting Soros in headlines feeds well into the jingoistic nationalism that thrives in India nowadays.
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In this narrative, the attack on Adani, a homegrown entrepreneur whose aggressive expansion is helping end some of India's most debilitating shortages of ports, airports, roads and energy is a reflection of Western envy: New York-based Hindenburg Research's short-seller note in January was the start of a concerted campaign, which the OCCRP is continuing.
What the conspiracy theorists are deliberately glossing over is a more mundane reality. India has a simple rule that at least 25% of the stock in listed companies must be owned by public shareholders. If, as the FT alleges, and as other reporting — including by me — has suggested in the past, that norm was breached at firms belonging to the Adani Group, the Securities and Exchange Board of India must investigate and demand remedies. This much has to be politically noncontroversial. What problem can nationalists have with institutions enforcing their own rules to protect investors, including domestic Indian financial institutions?
According to the FT, as of September 2014, all but $2 million of the $260 million invested by two offshore funds into Adani stocks was controlled by companies linked to Nasser Ali Shaban Ahli from the United Arab Emirates and Chang Chung-Ling from Taiwan; and in January 2017, the two secretly controlled at least 13% of the free float in three of the four Adani companies listed at the time.
When the newspaper asked Chang if he was an Adani associate, he said "I know nothing about this," and hung up the phone. Ahli didn't respond to the FT. Chang's name had also featured in the Hindenburg report, which was completely rejected by Adani. "Innuendoes" that any of the public shareholders "are in any manner related parties of the promoters are incorrect," the group said at the time. In a statement released Thursday, it said the "recycled allegations" in the FT article were "yet another concerted bid by Soros-funded interests supported by a section of the foreign media to revive the meritless Hindenburg report."
Whether the conglomerate was in breach, however, is not as important as the FT's account of the precious little that the regulator did to investigate if it was. The SEBI, it says, had inquired as early as August 2013 about the beneficial owners of two funds — both getting their money from a third fund in Bermuda — buying large amounts of Adani stock. Last week, SEBI filed a status report with the Indian Supreme Court about the progress of its inquiry into Hindenburg's allegations. That report said that its probe into breach of minimum shareholding norms is still awaiting information from five foreign jurisdictions.
This was along expected lines. As I wrote in May, the court-directed investigation would produce more heat than light. What couldn't get resolved over a decade is highly unlikely to get concluded under judicial directions in a few months. As the Congress, the main opposition party, has demanded, it's time to institute a joint parliamentary probe. A committee representing all major political affiliations — and armed with the power to summon high-level witnesses — must look into the allegations anew. Maybe even the lawmakers will not be able to reach a consensus. But their involvement will at least put the SEBI on notice.
Safeguarding the reputation of India's capital market globally may not be high on the current political agenda. In dealing with India, the West will put growth over governance and money over morals. That's a cynical view, but it might also be the right one. However, knowing who exactly owns India Inc. is not a diktat from Soros or the US state department. Keeping potentially malicious foreign actors out of its domestic capital markets is very much in India's national interest. If institutions of the government can't or won't uphold it, parliament must step in.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services.
Disclaimer: This article first appeared on Bloomberg and was published by a special syndication arrangement.
