Raising concerns over Adani Ports & Special Economic Zone Ltd's transactions with three entities, the company auditor Deloitte Haskins & Sells LLP says it can only issue a qualified opinion on the accounts due to insufficient disclosures. All three transactions mentioned in the qualified opinion by the auditor were mentioned by US-based Hindenburg Research in its January 2023 report.
In its opinion, Deloitte says, "The (Adani) group did not consider it necessary to have an independent external examination of these allegations (by Hindenburg) because of their evaluation and the ongoing investigation by the Securities and Exchange Board of India (SEB) as directed by the Supreme Court (SC). The evaluation performed by the group does not constitute sufficient appropriate audit evidence for the purpose of our audit."
"In the absence of an independent external examination by the group and pending completion of an investigation, including matters referred to in the report of the external committee constituted by the SC, by SEBI and in respect of the sale of assets...we are unable to comment whether these transactions or any other transactions may result in possible adjustments and disclosures in the statement in respect of related parties and whether the group should have complied with the applicable laws and regulations," it added.
In the note, Deloitte mentioned three transactions. It says Adani group entered into engineering, procurement and construction (EPC) purchase contracts substantially with a fellow subsidiary (contractor) of a party identified in the allegations made in the Hindenburg report. "As of 31 March 2023, a net balance of Rs3,749.65 crore is recoverable from this contractor, of which Rs2,036.63 crore relate to security deposits paid to the contractor and Rs1,680.23 crore in respect of capital advances."
The security deposit has an interest of about 8%pa (per annum) and is refundable by the contractor either on completion or termination of the project against which the deposit was given by the company. "Security deposits totalling Rs1,075.63 crore have been given prior to 1 April 2022, of which security deposits amounting to Rs253.63 crore related to projects which have not commenced as of 31 March 2023. The group has represented to us that the contractor is not a related party," Deloitte says.
Additionally, the auditor says, there were financing transactions, including equity, with or by certain other parties identified in the Hindenburg report, which Adani group says were not related parties. "As of 31 March 2023, all receivable and payable amounts were settled, including interest and there were no outstanding balance."
Near the year-end, Deloitte says Adani group re-negotiated the terms of sale of its container terminal under construction in Myanmar (held through a subsidiary audited by other auditors) with Solar Energy Ltd, a company incorporated in Anguilla. "The (Adani) group has represented to us that the buyer is not a related party. The carrying amount of the net assets (classified as held for sale) was Rs1,518.15 crore. The sale consideration was revised from Rs2,015 crore (US$260mn- million) to Rs246.51 crore (US$30mn), which has been received, and an impairment loss of Rs1,273.38 crore has been recognised as an expense in the profit and loss (P&L) account," it added.
Further, Deloitte clarified that it did not audit the financial statements of 85 subsidiaries included in the consolidated financial results of Adani Ports, which shows total assets of Rs48,694.98 crore as of 31 March 2023.
