21 highlights
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Business tycoon Gautam Adani’s billion-dollar empire has routinely faced attacks from critics who have alleged that all is not kosher with his meteoric rise.
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However, this changed about 10 days back when minister of state for finance Pankaj Chaudhary said that there were active probes pending against the group.
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Within hours of Chaudhary’s statement, the Adani group issued a press statement stating that there are no recent investigations pending against it.
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According to sources, the SEBI investigation into compliance issues of some Adani group companies is in preliminary stages.
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SEBI has in the past two months steadily increased the scrutiny around the foreign shareholders present in the Adani group’s listed companies, said a second person with direct knowledge of the matter, also requesting anonymity.
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A far bigger smoking gun is the problem with the company’s foreign fund shareholders.
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We examined eight funds and found that they have had the dubious honour of being heavily invested in companies (and linked to entities) that have either gone bust or faced serious regulatory scrutiny due to involvement in major scams.
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On 14 June, an article in The Economic Times stated that three of the foreign funds that held substantial shares in Adani group companies had been frozen by the National Securities Depository Ltd (NSDL).
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Member of parliament Mahua Moitra then wrote to SEBI, the income tax department, the Enforcement Directorate and the finance ministry seeking an investigation on 22 June.
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The privileged treatment for Adani FPI shareholders aside, the other part of the story is why some beneficiary accounts of these funds were facing a freeze. It all goes back to the notorious GDR scam.
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NSDL’s disclosure published on its website on 26 July does make it amply clear that the freeze is for specific beneficiary accounts whose stocks were allegedly manipulated through the global depository receipt (GDR) route.
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The modus operandi of the scam goes something like this—an overseas company/ fund acquires shares of company X, issued via GDRs. The successful subscription to the GDR issuance leads to a rise in the stock price of X. The fund borrows from banks to subscribe to the GDR issuance of X. The guarantee for this loan availed by the fund is given by X. Meaning that promoters are involved in pumping up their stock.
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Albula Investment Fund and Cresta Fund are named as sub-accounts of the main account in which ED suspects funds were routed to prevent the money from being traced and attached.
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In other words, Rs 1,891 crore is invested in Adani Enterprises via so-called participatory notes, or P-notes. While P-notes are a completely legitimate instrument, in India they are frowned upon as in the past there have been instances where they were used as a money laundering route.
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Now, Cistenique Investment Fund was a prominent investment vehicle in the 1MDB scam. The 1MDB, or 1Malaysia Development Berhad, scam is an ongoing political scandal in Malaysia. In 2015, Malaysia’s then Prime Minister Najib Razak was accused of channelling over RM 2.67 billion (approximately$700 million) from 1MDB, a government-run strategic development company, to his personal bank accounts.
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The answer provided in the Lok Sabha on Adani’s FPIs is a treasure trove of information for curious souls. The more threads you pull the more connections emerge.
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So even if you have the names, you will never know whose money is actually invested in the shares of the company.
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UBO reporting on a continuous basis is only required if one entity controls the fund, i.e. holds more than 25% of net assets.
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Closer home, the FPIs have also been prominent shareholders in companies embroiled in major scams or ones that were put through the bankruptcy resolution process, Bloomberg reported on 28 July.
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The money trail in this could pretty much turn out to be circular—money from duty evasion allegedly done by EIF may have possibly gone to Opal considering there is a common shareholder director and now this fund is a part of Adani Power.
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Adani may only now be getting some attention but it will be fair to say that as his group grows bigger, it is not the future he should be worried about but the past.