Indian data reveals Adani empire’s reliance on offshore funding

London/Mumbai: Almost half of all foreign direct investment into Gautam Adani’s conglomerate in recent years came from offshore entities linked to his family, highlighting the role of hard-to-scrutinise money flows in financing the Indian tycoon’s business empire.

A Financial Times analysis of India’s FDI remittance statistics shows offshore companies linked to the Adanis invested at least $2.6 billion in the group between 2017 and 2022, 45.4 percent of the more than $5.7 billion it received in total FDI over the period.

The data underlines how funds of unclear provenance have helped Adani build his sprawling group as he expanded a trading and plastics operation into an infrastructure giant while aligning himself with Prime Minister Narendra Modi’s development agenda.

The full extent of money flows from connected offshore entities into Adani Group is likely to be even higher given FDI data only captures a portion of overseas investment. The rapid, debt-fuelled growth of Adani’s companies drew scrutiny last year after their rocketing share prices briefly made him one of the world’s richest people.

But his rise was halted in January when a US short seller alleged that a labyrinthine network of mostly Mauritius-based shell companies appeared to have been used to route funds into India to manipulate share prices of Adani’s seven listed companies or make their balance sheets look healthier.

The report by Hindenburg Research triggered a stock market rout that wiped more than $100 billion from the market value of the seven companies. Opposition politicians have since demanded inquiries into Adani’s foreign connections, while India’s Supreme Court this month directed the country’s securities regulator to wrap up a probe within two months.

In the year to September 2022, Adani Group was one of India’s biggest recipients of money officially recorded as FDI, receiving 6 percent of inflows into the country. Of the group’s $2.5 billion in catalogued FDI over the 12-month period, $526 million came from two Mauritius companies linked to the Adani family while nearly $2 billion came from Abu Dhabi’s International Holding Company.

The full extent of opaque overseas investments into Adani companies will be higher still. Official FDI statistics include neither foreign portfolio investments, which fall under a different reporting regime, nor investments in listed companies amounting to less than 10 percent of their paid-up capital.

Most offshore shell companies supplying FDI to the conglomerate have been disclosed as part of Adani’s “promoter group”, meaning they are closely tied to Adani or his immediate family.

Experts say the role of the offshore entities make an already Byzantine corporate structure — Adani Group has hundreds of subsidiaries and has disclosed thousands of related-party transactions — even more opaque.

“Why do you make it so complex that it’s very difficult for outsiders to understand? I think that is a legitimate question to ask,” said Jonas Heese, associate professor at Harvard Business School’s accounting and management unit.

The biggest investments came from two companies directly or indirectly linked to Adani’s elder brother Vinod, who is listed in stock exchange filings as a Cypriot national and lives in Dubai.

Emerging Market Investment DMCC, which states on its website that it only invests Vinod Adani’s funds, ploughed $631 million into Adani companies between 2017 and 2018. Meanwhile, Mauritius-registered Gardenia Trade and Investment, which invested $782 million into Adani companies between 2021 and 2022, is directed by Emerging Market’s manager Subir Mittra.

Adani, which strenuously denies Hindenburg’s allegations, declined to comment on why such a large proportion of its overseas funding came from companies whose ultimate source of funds was not clear. However, it said “all these transactions are fully disclosed in our accounts and have been since 2015”.

Analysts said the money moving from obscure Mauritius entities was concerning because it was impossible to ascertain whether or not the funds had been “round-tripped” — sent out of India to a regulation-light offshore jurisdiction, then brought back into a connected company to boost its share price. India’s overseas investment rules prohibit round-tripping arrangements.

Experts say the opacity surrounding the Adani Group’s offshore entities is unusual for a company that relies on institutional capitalfor growth because established investors prefer to back companies they understand. Typically, “with this lack of transparency you can’t grow that fast”, said Bala Vissa, professor of entrepreneurship and family enterprise at business school Insead.

A quarter of the more than $2.6 billion in FDI that flowed into Adani companies from the connected offshore companies between 2017 and 2022 arrived in 2017. FDI data shows the shell companies made 165 separate FDI transactions that year worth an average of less than $4 million, with the majority flowing to Adani Ports.

Adani’s net worth ballooned 125 percent to $10.4 billion over the course of 2017, according to Bloomberg data, faster than any other Indian tycoon that year. Money flows into Adani companies have at times made up a large proportion of Mauritian FDI into India. In the first quarter of 2021, for instance, they accounted for 23 percent of the Mauritius-to-India total.

Mahua Moitra, an opposition politician and former investment banker who is a vocal Adani critic, said Adani group’s lack of transparency was unprofessional.

“They have got all the benefit of a big cap, such as inclusion in indices, access to cheap debt,” she said. “But at the same time they’re operating like a small mom and pop shop.”