Hindenburg Research, an American investment research company, on Tuesday published a report alleging that the Adani Group was pulling off the “largest con in corporate history”. The report alleged that the conglomerate has over the decades been involved in stock manipulation, accounting fraud, used offshore shells for money laundering and siphoned money from listed companies.

The allegations listed by Hindenberg led to a massive drop in the prices of Adani stocks over the next few days. This in turn has raised concerns over the high exposure of state-owned insurance company, the Life Insurance Corporation, to Adani Group companies. Over the past few years, LIC has invested significantly in the Adani group, channeling millions of rupees of middle class savings into the conglomerate. Any sharp fall in Adani stock prices will now end up affecting the returns of millions of LIC policyholders.

Allegations against Adani Group

Hindenburg Research, following a two-year investigation, made wide-ranging allegations of the Adani Group being involved in corporate malpractice. It alleged that members of the Adani family had cooperated in creation of offshore shell entities in tax-havens such as Mauritius and generated forged import-export documents in an apparent effort to generate fake turnover and to siphon money from the listed companies. The research firm also alleged that some shells seemingly served several purposes such as stock parking or stock manipulation and money laundering.

Short sellers identify allegedly overvalued companies, borrow and sell their stocks at current market price and buy them back at a lower price in the future when the price has fallen, in order to make profit. To this end, activist short-sellers seek to expose such a company’s negative financial information.

This is not the first time questions have been raised about the Adani Group’s business practices. In August 2022, New York-based finance and insurance company Fitch Group’s CreditSights unit had warned of the Adani Group having taken on too much debt and raised the possibility of a default “in the worst-case scenario”. The report had, however, also said that the Adani Group draws “comfort” from its strong relationships with banks and the Indian government.

A container ship docked at the Adani Port Special Economic Zone (APSEZ) in Mundra. Credit: Sam Panthaky/AFP
A container ship docked at the Adani Port Special Economic Zone (APSEZ) in Mundra. Credit: Sam Panthaky/AFP

In July 2021, Minister of State for Finance Pankaj Chaudhary had informed Parliament that the Securities and Exchange Board of India and the Directorate of Revenue Intelligence were probing some Adani Group companies for alleged non-compliance with rules. Around the same time, Bloomberg reported that four companies then under the scanner for parking 90% of all their money in Adani Group firms had a history of investing in companies that ended up defaulting or were investigated for wrongdoing.

Also read: From 2014 to 2019: How the Adani Group funded its expansion

LIC’s ballooning investments in the conglomerate

Despite these concerns, the Union government-controlled LIC, has made significant investments in the Adani Group. The insurer accounts for over 98% of the entire insurance industry’s investment in the Adani Group.

In terms of the value, LIC’s holdings in Adani Group companies have reportedly multiplied 10 times since September 2020. From around Rs 7,300 crore of LIC’s equity assets under management in 2020, the value had ballooned to nearly Rs 72,200 crore as on Tuesday. “Assets under management” refers to the total market value of the investments that an entity controls.

In spite of the latest fraud allegations against the Adani Group, the LIC has not changed course. This week, it infused approximately Rs 300 crore into Adani Enterprises – the group’s flagship company.

The Adani Group’s companies facing a market rout this week following allegations made in the Hindenburg report, has raised concerns about the LIC’s high exposure to the conglomerate. Seven listed Adani Group companies have lost a total of $48 billion in share value since the report was published.

The LIC has significant stakes in Adani Group companies. In Adani Enterprises, the insurer holds 4.23% of the shares. Similarly, in Adani Ports, Adani Total Gas, Adani Transmissions and Adani Green, the LIC holds 9.14%, 5.96%, 3.65% and 1.28% stakes, respectively.

The LIC reportedly lost more than Rs 16,500 crore from sell-off in these five Adani Group companies, in the two market sessions that happened after the report was published.

An exterior view of Life Insurance Corporation of India's headquarters is seen in Mumbai. Credit: Danish Siddiqui/Reuters
An exterior view of Life Insurance Corporation of India's headquarters is seen in Mumbai. Credit: Danish Siddiqui/Reuters

Implications for investors

LIC invests the money it receives from its investors into assets such as stocks. The returns generated from these assets in turn are paid back to investors. Given that an investor’s investment in LIC’s products are partially linked to the equity market, where LIC invests is a crucial determinant in a person’s returns.

Moreover, the size and scale of LIC make it a critical variable when it comes to the Indian middle class, which often depends on the company for critical products like post-retirement savings. LIC has a massive 250 million investors and the funds it manages are as large as the entire mutual fund industry.

Concerns around LIC’s poor investment decisions are not new and the company has long generated poor returns for its investors. However, this is the first time the public sector company’s investments are under a cloud for ploughing money into a private corporation.

Political heat

Given the size of the LIC policy holder pool, its investments in Adani has generated political heat. Congress leader Jairam Ramesh said on January 27 that LIC’s high exposure to the Adani Group has exposed people who have placed their savings into LIC to financial risk. “The high exposure of financial institutions such as the Life Insurance Company of India and the State Bank of India to the Adani Group has implications for financial stability and for the crores of Indians whose savings are stewarded by these pillars of the financial system,” he argued.

Sitaram Yechury, leader of the Communist Party of India (Marxist), similarly said if allegations made by Hindenburg Research against the Adani Group are correct, it would “destroy lives of crores of Indians who park lifelong savings in LIC and [the State Bank of India].”