A day after Deloitte Haskins & Sells LLP, the statutory auditor of Adani Ports and Special Economic Zone (APSEZ), flagged insufficient disclosures over certain transactions, the Adani Group company clarified that “an independent examination at this stage will not be appropriate given the ongoing investigations by market regulator SEBI and the expert committee appointed by the Supreme Court.
“The audit committee of the company as well as the company are of the view that an independent examination at this stage will not be appropriate given the ongoing investigations by SEBI and the Expert Committee appointed by the Hon’ble Supreme Court. Deloitte’s qualification this year, as we summarise it, is owing to the pending conclusion of these investigations,” an Adani spokesperson said.
In the fourth quarter earnings report of APSEZ released on Tuesday, the auditor raised concerns over the company's transactions with three entities, which were termed as “unrelated parties” by the company. Deloitte said that it could not confirm whether the parties were indeed unrelated and that “the evaluation performed by the group does not constitute sufficient appropriate audit evidence for the purpose of the audit”.
One of the three transactions flagged by Deloitte include the group’s entering into Engineering, Procurement and Construction (EPC) purchase contracts substantially with a fellow subsidiary (contractor) of a party identified in the allegations made in the U.S.-based short seller Hindenburg Research in its report released on January 24 this year. The group, however, claimed that has represented to us that “the contractor was not related party.”
“As of March 31, 2023, a net balance of ₹3,749.65 crore was recoverable from this contractor, of which ₹2,036.63 crore relate to security deposits paid to the contractor and ₹1,680.23 crore in respect of capital advances. The security deposits carry an interest of approximately 8% per annum and are refundable by the contractor either on completion of termination of the project against which the security deposit was given by the company. Security deposits totalling ₹1,075.63 crore have been given prior to April 1, 2022, of which security deposits amounting to ₹253.63 crore relate to projects which have not commenced as of March 31, 2023,” it said.
“There were financial transactions (including equity) with certain other parties identified in the allegations made by the Short Seller Report, which the Group has represented to us were not related parties,” the auditor disclosed in the quarter results.
The auditor also raised concerns about Adani Ports’ sale of its Myanmar port to Solar Energy Ltd., incorporated in Anguilla. The sale price was revised from ₹2,015 crore ($260 million) to ₹246.51 crore ($30 million), and an impairment loss of ₹1,273.38 crore was recognised as an expense in the profit & loss account. The group told the auditor these were not related parties.
“The group has represented to us that there is no effect of the allegations made in the short seller report on the statement based on their evaluation and after consideration of a memorandum prepared by an external law firm on the responses to the allegations in the short seller report issued by the adani group. The group did not consider it necessary to have an independent external examination of these allegations because of their evaluation and the ongoing investigation by the Securities and Exchange Board of India as directed by the Supreme Court,” it added.
Meanwhile, shares of Adani Ports were trading 0.2% lower at ₹735.70 on the BSE at the time of reporting. The stock opened marginally higher at ₹732.70 against the previous closing price of ₹737.25, while it hit an intraday high and low of ₹744.80 and ₹730, respectively.