Why Hindenburg report is a blessing in disguise for Gautam Adani

In 2006, I researched and wrote a paper for the Cato Institute on Gujarat's new strategy of port-based development. This strategy was launched by Congress chief minister Chimanbhai Patel in the early 1990s and expanded by BJP successors. I visited Gautam Adani's new Mundra port and was struck by its high automation and speed. I was astounded to hear that it financially compensated any ship that was not admitted and unloaded on schedule. While working in Mumbai in 1990, I had seen ships wait 20 days for port entry. So, Mundra seemed to be on another planet.


The Hindenburg Research report has alleged vast price rigging and fraud by Adani companies. The charges are serious. Global investors have stampeded out of Adani shares. We need a thorough investigation, and punishment of the guilty.


Let me raise a separate linked issue. Adani's critics say he shot to riches not through skills but manipulation and political favours, minting money in cosy monopolies. I disagree. Going from humble origins to global No. 3 in two decades is impossible without exceptional business skills.

Critics accuse BJP of 'giving' Adani valuable assets, from ports and mines to airports and transmission lines. No. What the government initially gave Adani was the right to operate a minor port in the Kutch desert without even a rail connection. To convert this desert patch into India's largest port is close to miraculous.

Adani has also acquired jetties and ports in a dozen other locations, beating global giants like Maersk and Dubai World in competitive auctions. He is incomparably India's top port operator, handling an estimated quarter of total Indian freight. This makes him a national champion.

So, GoI is backing him to acquire strategic jetties and ports in Sri Lanka and Israel. Critics call this a favour. Really? The Sri Lanka terminal will cost $750 million and Haifa Port $1.18 billion. No Indian rival would dare risk so much even if offered on a platter. Adani's skills have made him a strategic player, more than just a businessman.

A port is no cosy monopoly. It has to compete in logistics and pricing to woo ships from established rivals. Mundra's logistics have attracted business investments of thousands of crores, creating an industrial hub in the desert. It has the world's largest automated coal-handling facility. A 2017 Morgan Stanley report puts Adani Ports and Special Economic Zone (APSEZ) in the top 25% of global port companies.

Critics focus on government favours to Adani. In India, business success requires good management of not only factories but politics too. All businessmen cosy up to politicians. But while this opens doors and overcomes some rules, it cannot guarantee success. Anil Ambani is often accused by Rahul Gandhi of getting ₹30,000 crore in defence deals. Yet, he has flopped commercially.

Once, Dhirubhai Ambani was also accused of political manipulation and boondoggles. He responded, 'What have I done that every other businessman has not?' There was no reply. Other businessmen, many with formidable historical advantages, had also wooed politicians and fiddled books. For a newcomer like Dhirubhai to beat the old giants at their own game signified immense talent. Something similar can be said of Adani.

Dhirubhai's dubious acts are detailed in Hamish McDonald's 1998 book, The Polyester Prince. But critics are dead wrong to think that he was just a successful manipulator. During the licence-permit raj, manipulation was inescapable. But once the economy was liberalised, he built the world's largest export-oriented oil refinery with operating margins higher than even Singapore's famed refineries, proving himself world class. He got favours in telecom but created the cheapest telephone network in the world. Those who focus only on his manipulation are blind to the phenomenal skills that made him a historical titan, warts and all. Adani is treading a similar path.

Critics say Adani deals mainly in infrastructure where cosiness to the government matters more than true skills. No. Dozens of new tycoons with strong regional political clout joined the infrastructure boom of 2003-08. But despite having political godfathers, many ran into trouble and went bust, leaving banks with enormous unpaid debts. Success in infrastructure requires skill, not just political friends.

Readers may think I am a great Adani fan. But I do not own any Adani company shares because of high prices and high risk. Adani has been diversifying and expanding at breakneck speed using borrowed money, bidding very high prices in auctions and acquisitions. This facilitates fast expansion, but carries great risks. History has examples aplenty of business titans who diversified crazily to create giant conglomerates, succeeded for a few decades amid applause, but eventually came a cropper (like General Electric under Jack Welch).

So, I think the Hindenburg report may be the best thing that ever happened to Adani. It will slow his speed of expansion and diversification, and force his financiers to be diligent and cautious in future. This could impose highly desirable financial discipline on Adani, to his own benefit. Hindenburg may have been a blessing in disguise - or, in Winston Churchill's words in response to his wife trying to cheer him up after his post-war electoral defeat, a blessing 'quite effectively disguised'.

One day I might actually buy Adani shares.