Deloitte requested an independent external investigation on the allegations around the Hindenburg; Adani claims the grounds for the resignation are not compelling

Deloitte requested an independent external examination of claims made by a US short-seller before resigning as an auditor of an Adani Group company, but the company claimed the claims had no impact on financial statements and the justifications offered for the resignation were insufficient to support such a step.

Adani Ports and Special Economic Zone (APSEZ) said in a 163-page filing with stock markets about Deloitte Haskins & Sells LLP’s departure that in meetings with its leadership, Deloitte expressed concern over a lack of a larger audit role as auditors of other listed Adani entities.

 

However, the business informed the auditor that since other organizations are “completely independent,” it was beyond the scope of its authority to suggest such nominations.

 

The former union home secretary and chairman of the APSEZ Audit Committee, Gopal Krishna Pillai, said in a statement that the committee “was of the view that the grounds advanced by Deloitte for resignation as Statutory Auditor were not convincing or sufficient to warrant such a move.”

 

It was decided to peacefully conclude the client-auditor contractual relationship since Deloitte “was not willing to continue as… Auditor,” he stated.

 

Deloitte said in its letter of resignation dated August 12 that it was leaving its position as auditor of APSEZ immediately “because we are not statutory auditors of a substantial number of other Adani Group of companies.”

 

The company continued by saying that it has provided a qualified opinion in the audit of the financial statements for the quarters ended in March 2023 and June 2023.

 

In a filing, APSEZ said that it has replaced Deloitte as its statutory auditors until the date of its next annual general meeting, which will be held in 2024, with MSKA & Associates, an independent member firm of BDO International.

 

Deloitte, who had been appointed the auditor of APSEZ in 2017 and was awarded a new five-year contract in July 2022, had expressed initial concerns about several of the transactions noted in the Hindenburg Research study in May.

 

Recovery payments from a contractor mentioned in the Hindenburg report were among them. Hindenburg also raised concerns about incomplete reporting of related party transactions in its report from January 24 that accused the Adani Group of fraud, stock manipulation, and money laundering. All charges have been refuted by Adani Group.

 

According to Deolitte, “We asked the company to launch an independent external examination of these allegations to see if they might have any bearing on the standalone financial statements of the company.”

 

The corporation assured us that these claims had no bearing on the company’s standalone financial reporting.

 

Due to their analysis and the Securities and Exchange Board of India’s (SEBI) current inquiry, Adani Group did not feel it essential to conduct an impartial outside assessment of these accusations.

 

According to Deloitte, “the company’s assessment did not constitute sufficient appropriate audit evidence for the purposes of our audit.”

 

The auditor stated that it is unable to comment on whether the company was fully compliant with the law and whether the transactions flagged may lead to potential adjustments and/or disclosures in the financial statement in respect of related parties in the absence of the independent external examination and the ongoing completion of the SEBI investigation.

 

In its preliminary report, the six-member expert group that the Supreme Court formed in May found no indications of regulatory failure or price manipulation in the equities of the Adani Group.

 

Engineering, procurement, and construction (PEC) purchase agreements with a subsidiary of a party mentioned in the Hindenburg report were among the transactions that Deloitte noticed.

 

“As of March 31, 2023, a net balance of Rs. 2,457.05 crore is recoverable from this contractor, of which Rs. 713.63 crore relate to security deposits paid to the contractor and Rs. 1,501.50 crore in respect of capital advances,” the statement said.

 

Additionally, the company “re-negotiated the terms of sale of its container terminal under construction in Myanmar” to Solar Energy Ltd., which has its headquarters in Anguilla. An impairment charge was made and the selling consideration was reduced from Rs 2,015 crore to Rs 246.51 crore. These parties are not linked, the group informed the auditor.

 

According to APSEZ’s statement on Saturday, “in response to a query by the Audit Committee, Deloitte confirmed that they have received all the APSEZ information from the management of the company.”

 

“The same has been confirmed by Deloitte in their resignation letter dated August 12, 2023 to the company,” the statement said.

 

The ‘additional problems’ mentioned in the auditor’s resignation, according to APSEZ, are sufficiently reported and covered in our FY23 financial results. We have every confidence that our submission from September 23 will adequately address these issues.

 

At their lowest point following the release of the Hindenburg report, the market value of Adani group stocks fell by about $150 billion, but has since recovered by about $50 billion thanks to debt repayment and the sale of stakes in group companies to buyers like the Qatar Investment Authority and US-based boutique investment firm GQG Partners.

 

Ambuja Cements, owned by Adani, purchased Sanghi Industries last month for up to $295 million, marking the company’s first significant acquisition since the Hindenburg commotion.