Deloitte, Haskins & Sells LLP is expected to resign as the statutory auditors of Adani Ports & Special Economic Zone (APSEZ), deepening concerns over the accounting treatment of at least three transactions that the firm had red flagged in the past two quarters.
The auditor may resign as early as next week – possibly before the August 14 deadline that the Supreme Court has set for the Securities and Exchange Board of India to submit its report on the accusations of stock market fraud and irregularities in related party transactions at the Adani group that were levelled by US short seller Hindenburg Research on January 24.
Deloitte had baulked at Adani Ports’ assertion that these were not related party transactions. The audit firm chose to express a qualified opinion over these transactions in the financial results for the quarters ended March 31 and June 30 this year.
The firm had said that it could not corroborate the company’s statement as no independent external examination had been carried out to support the Adani group’s claims. A Bloomberg report said BDO India LLP’s audit arm, MSKA & Associates, may replace Deloitte.
Neither Deloitte nor Adani Ports commented on the latest development.
The apex court had asked the regulator to complete its investigation into the stock manipulation allegations made by Hindenburg.
Deloitte isn’t the first auditor to resign at an Adani group firm. In May, Shah Dhandharia had resigned as the auditor of Adani Total Gas citing its “pre-occupation”.
The Adani group had seen an over $100 billion meltdown in the valuation of the six group companies immediately after the Hindenburg report was made public. The stocks have rallied strongly since then and the Adani group seemed to have weathered the storm. It has been preparing to raise funds from strategic investors in several companies. At least two group firms are also readying to float bonds in the domestic markets to rustle up over $ 181 million.
Suspicious deals
The Hindenburg report had alleged that several listed Adani companies had paid PMC Projects – a private contractor – a sum of Rs 6300 crore ($ 784 million) over the past 12 years.
PMC Projects had been characterized as a “dummy firm” in an investigation carried out by the Department of Revenue Intelligence (DRI) in 2014 into a scandal involving overinvoicing of coal and power equipment.
The short seller’s report had also claimed that the sole beneficial owner of PMC Projects was Chang Chien-Ting, the son of Chang Chung-Ling – a close associate of Vinod Ambani, the elder brother of Gautam Adani who heads the eponymous group.
In its auditors’ report on Adani Ports, Deloitte had said that a net balance of Rs 3,871.94 crore was recoverable from the contractor at the end of June 30, 2023 (Rs 3,749.65 crore at the end of the quarter ended March 31).
Of this, a sum of Rs 2,036.63 crore (same in the previous quarter) related to security deposits paid to the contractor and Rs 1,698.02 crore (Rs 1,680.23 crore) were linked to capital advances.
It added that the security deposits carry an interest of 8 per cent annually and are refundable by the contractor either on completion or termination of the project against which the security deposit was given by the company.
According to Deloitte, security deposits totalling Rs 2,036.63 crore were given prior to April 1, 2023. Out of this, deposits amounting to Rs 913.63 crore (Rs 253.63 crore) relate to projects which had not commenced as at June 30, 2023. The Adani group had maintained that the contractor was not a related party.
Deloitte had also cited the sale of Myanmar port to Solar Energy Ltd, a company incorporated in Anguilla, a British Overseas Territory in the Caribbean. It disclosed that the group had re-negotiated the terms of sale of the container terminal under construction in Myanmar and the company had said that the buyer was not a related party.
