Explained | Decoding the OCCRP’s Adani report

. OCCRP's exposé adds to evidence of SEBI's regulatory failure and possible regulatory capture in Adani-Hindenburg matter. SEBI has been indicted for amending regulations to facilitate concealment of ultimate beneficiary ownership of FPIs and transactions with related parties. 13 FPIs sold 8.6cr shares of Adani Enterprises when its price skyrocketed, yet SEBI gave them a clean chit. A forensic audit of Adani group companies and 13 FPIs is needed to reveal extent of alleged economic crimes. OCCRP exposé only reveals tip of iceberg.

The story so far: In its order dated March 2, on the batch of petitions concerning the Adani-Hindenburg matter, the Supreme Court of India had directed the Securities and Exchange Board of India (SEBI) to conduct investigations in accordance with specific terms of reference. The first term was to probe whether there has been a violation of Rule 19A of the Securities Contracts (Regulation) Rules 1957. Two more terms were set by the apex court related to non-disclosure of related party transactions and the manipulation of stock prices in contravention of existing laws. In addition, a separate Expert Committee was formed to inter alia examine whether there has been a regulatory failure in dealing with the alleged contravention of laws by the Adani group. Now, a media investigation has brought forth further allegations.

Rule 19A of the Securities Contracts (Regulation) Rules 1957, inserted through an amendment made with effect from June 4, 2010 under “Continuous Listing Requirement”, stipulates that every company listed in the Indian stock market has to maintain at least 25 percent public shareholding. “Public” is defined in the said Rules as persons other than “the promoter and promoter group” — defined as any spouse of that person, or any parent, brother, sister or child of the person or of the spouse, besides “subsidiaries or associates of the company”. This 25 per cent minimum threshold for public shareholding vitally ensures that adequate shares of a listed company is available for trading in the stock market to enable price discovery. Violations of this rule indicate likely stock price manipulation and insider trading, jeopardising the integrity of the equity market.

An investigation conducted by the Organized Crime and Corruption Reporting Project (OCCRP), as reported in the Financial Times and The Guardian on August 31, has found that two Mauritius based funds, namely the Emerging India Focus Fund (EIFF) and the EM Resurgent Fund (EMRF) had invested and traded in large volume of shares of four Adani companies between 2013 and 2018. Two key foreign investors of these funds were Nasser Ali Shaban Ahli from the UAE and Chang Chung-Ling from Taiwan.

The money was channelled through a Bermuda-based investment fund called the Global Opportunities Fund (GOF). The value of the investments of Nasser Ali and Chang Chung-Ling in Adani stocks was around $430 million in March 2017 (approximately ₹2,795 crore at prevailing exchange rate). In January 2017, these two investors together held 3.4% of total shares in Adani Enterprises, 4% in Adani Power and 3.6% in Adani Transmission.

The OCCRP investigation has further revealed that a UAE-based secretive firm named Excel Investment and Advisory Services Limited owned by Vinod Adani, brother of Gautam Adani and member of Adani promoter group, had received over $1.4 million in “advisory” fees from management companies of EIFF, EMRF and GOF between June 2012 and August 2014. The investigators have not only dug up invoices and transaction records, but also internal emails which suggest that EIFF, EMRF and GOF were investing funds into the Adani group stocks at the behest of Excel Investment and Advisory Services Limited, that is, Vinod Adani.

Therefore, there is now prima facie evidence that entities like EIFF, EMRF and GOF were/are fronts through which Vinod Adani has invested massive funds into Adani group companies stocks. If one adds the shareholding of Vinod Adani in three Adani companies — through offshore individuals and entities like Nasser Ali and Chang Chung-Ling via EIFF, EMRF and GOF, with the disclosed promoter group shareholding of those companies — the promoter group shareholding of Adani Enterprises and Adani Transmission stood at over 78% in January 2017. This would be in clear breach of the 75% threshold contained in 19A of the Securities Contracts (Regulation) Rules.

The OCCRP evidence is over and above the ones already provided by the Hindenburg report which alleged a vast global web of tax haven based shell companies run by Vinod Adani through individuals like Chang Chung-Ling and offshore funds such as EIFF, EMRF etc. If more shell companies and transactions are investigated, it could further reveal breaches and contraventions of rules and regulations by the Adani group via the Vinod Adani channel.