The Wall Street Journal reaction on Adani Enterprise and Gautam Adani investment around world is predictable. WSJ quintessentially represents the WASP whose Empire is on decline. Hundred years ago it was City of London that determined how a country should be governed.
The City was the homologue of the NYSE today. The British Empire as sinking, but Anglo-Saxon Empire still controls about sixty percentage points of global goods and services.
In post Second World War period, the American hegemon took over the world economy as the successor of the Imperialist Capitalist World. A word of caution. American Imperialism is different from that of the British, French or the Spanish. The American market represented all the qualities of colonial mindset. Because as the crucible of the whole world America became the single most powerful nation on earth.
But the West is not convinced; they want to push back the rise of an Asian country. This is because India, an Asian country, is developing faster than the west. It is the colonial mindset that cannot accept the phenomenal growth of an Indian company! It is quite possible, in the process of Adani Enterprises phenomenal growth, there may be loopholes.
But the investigation already set in should calm things down.
What the West did in the centuries past still tickles their romantic nostalgia. They used their colonial tools to benefit them. When the British brutally suppressed the first war of Independence of India in 1857, there was a halaloolu “God save the Queen!”
India was looted by the British through various means: desecration of the Queen of Oudh, massacres of Jallianwala Bagh, inhuman torture on the Bengali peasants, murdering them, cutting their fingers to force indigo plantation, growing of Indigo under duress, to be exported to China!
And the deliberate annihilation of Jamdani Industries in Bengal to benefit Birmingham and Manchester. And last but not the least, by artificial creation of famines in 1770, 1780 and 1943 – in Bengal – so much for their hatred against the recalcitrant Bengalese! That kept the huge colony in thralldom.
John Strachey, War Minister in the British Labour government gave an example, while citing examples about corruption, said how the colonial power impoverished the Indian subcontinent.
In his book “The End of Empire” in 1959 he said about Bengal: Lord Clive, in an effort to lessen the rampant corruption of the East India Company officials, legalised their right to private trade even though they were paid servants. Every officer got his share strictly according to seniority –a colonel got £ 7000 a year, a major £2000 (about £ 90,000 and £ 40,000 in present day value).
‘Drawing on nearly two centuries of detailed data on tax and trade, Utsa Patnaik in his book A Theory of Imperialism calculated that Britain drained a total of nearly $45 trillion from India during the period 1765 to 1938. It's a staggering sum.
For perspective, $45 trillion is 17 times more than the total annual gross domestic product of the United Kingdom today.’
The US imposed Monroe doctrine. South America was the US backyard! Africa was occupied by France, Germany, Portugal, Belgium and Italy. The nostalgia of those crimson days are still haunting them – they are not yet ready to admit their inhuman exploitation of the colonies.
India is the present day success story. She has overtaken the British economy –India is no 5 in the world. By 2031 India’s GDP is likely to be 11 trillion. BRICS have the potential to replace G7.
Now West has started Trade War to stop the rise of Asia, particularly India. Until two weeks ago, the ports-to-energy conglomerate which operates seven publicly traded companies had a combined valuation of $220bn.
But since 24 January, when short seller Hindenburg Research accused the group of "brazen" stock manipulation and accounting fraud, its valuations have nearly halved.
The group's founder Gautam Adani has seen billions wiped off his personal wealth and has dropped out of the list of the world's top 20 richest people.
The operative question is, what happens after the great fall? Even if something in excess of $120 billion has been lopped off the market value of the Adani firms (with about two-thirds of that loss suffered by Gautam Adani himself), the fact is that the group is still valued at over $100 billion, with Mr Adani worth at least two-thirds of that.
These numbers have to be approximations because of the rapidly evolving scenario, andvbecause it is hard to make adjustments for cross-holdings, pledges of promoter shares etc. But even if Mr Adani is no longer the world’s No. 1 or No. 2 in terms of wealth, or even No. 20, he remains a very wealthy man and Adani Enterprise is still a very large entity.
So what next? Hindenburg Research said that the group was 85 per cent overvalued.
Since that estimate was released 10 days ago, the share price correction has averaged about 60 per cent. But even now, the group’s companies enjoy outsize valuations. Adani Power, for instance, is valued at more than 14 times book value, as is Adani Transmission, while Adani Green Energy is valued at 56 times book value!
Companies don’t live or die on the basis of their market capitalisation, though they can exploit it to raise fresh capital. But capital has to be serviced, especially debt, for which you need profits and cash flow. The financials of the seven core listed entities of the Adani group show pre-tax profits last March of about ~17,000 crore — not very different from that of National Thermal Power Corporation (NTPC)!
As TN Ninan in The Print online media suggested, with limited cash flow, and with market capitalisation reduced by more than a half, the Adani group will have to cut its coat according to the cloth. The big difference with Mukesh Ambani, who (if such things matter) is now much wealthier than Mr Adani, is that he has already pared his debt and therefore has cash to burn on anything he chooses to invest in.
So we may hear less than before about Mr Adani becoming the biggest producer of green hydrogen and the biggest power producer, with big projects also in solar energy, defence, and semi-conductors, quite apart from expanding existing port, airport, and other businesses.
In the early 1980s a bear attack was launched on a controversial businessman gaining rapidly in prominence was when a cabal of brokers launched an assault on what they thought was an over-priced Reliance share. The company’s promoter was the redoubtable Dhirubhai Ambani, no mean share market operator himself! He responded quickly by rounding up “Friends of Reliance”, mostly from abroad, and launched a counter-attack — forcing heavy costs on the bears, who now had to cover their open positions even as the Reliance price soared. No stock-market player took him on again!
Gautam Adani has a fight on his hands. He would certainly have re-assessed his position after the initial setbacks, when he declared he would neither extend his public issue nor lower its price. He has friends in the right places, he remains the second-wealthiest person in the country, and his corporate group one of the biggest. It is not a fight to death. This is by no means the end of Gautam Adani.
Writer: Waliur Rahman
Twitter: @AmbWaliur