Adani-Linked Contractor Under Scrutiny, Reemerges With A New Identity, Says Report

Adani Group has continued its association with Howe Engineering Projects (India) Pvt Ltd., a controversial contracting firm linked to a Taiwanese family, as per a report by Bloomberg. Regulatory filings reveal the evolving connection amidst government scrutiny and auditor investigations. In 2014, the Indian government accused PMC Projects Pvt Ltd., a part of Howe Engineering, of being used by Gautam Adani's empire to funnel funds abroad. Adani denied any wrongdoing, and the investigation was dismissed in 2017.

In April 2016, PMC's engineering operations were merged into Howe, as per court filings. Recent Bloomberg-analyzed filings reveal Howe's ongoing role as an Adani contractor for major ports and railway projects in India.

Deloitte's uncertainty in classifying Howe as a related party led to concerns about payments from Adani's ports company. In August, Deloitte resigned as the auditor for Adani Ports & Special Economic Zone Ltd., citing insufficient oversight of the conglomerate's overall accounts.

Howe's case highlights ongoing challenges for shareholders understanding money flows in Adani companies, following fraud allegations by Hindenburg Research. Adani denies the claims, with Hindenburg specifically targeting PMC for diverting funds. However, Howe was not mentioned in Hindenburg's report.

An Adani spokesperson stated via email that Howe and PMC are independent entities, not Adani-related parties, and all transactions are legally compliant.

India's securities regulator is investigating Hindenburg's allegations against Adani, focusing on potential related party transactions among other issues. The agency has not disclosed its findings yet.

PMC Projects and Howe are owned by a Mauritius-registered entity, ultimately owned by Taiwanese entrepreneur Chang Chien-ting and his father Chang Chung-ling, with a history of financial dealings with Adani companies.

When companies designate contractors as related parties, payments undergo heightened scrutiny from auditors and the board. Adani, asserting that Howe and PMC aren't related parties, avoids these additional checks for Howe payments.

Founded in 2005 by Dr. Malay Mahadevia, a senior Adani executive, PMC Projects saw its ownership transferred multiple times. By 2012, the Changs' PMC Infra Ltd. in Mauritius held its shares. The pivotal shift occurred in 2016 when the majority of its business moved to Howe, leading to a significant surge in Howe's revenue.

Despite being relatively unknown in India, Howe has not been accused of engaging in illicit business dealings. Bloomberg's analysis of documents reveals that as of June, Adani had around $450 million in outstanding advances to Howe.

Adani asserts Howe is not a connected entity, but Sharmila Gopinath, a specialist advisor for India at the Asian Corporate Governance Association, told Bloomberg that, considering Adani's significant payments to the contractor and its Taiwanese ownership, the transactions should be declared as related party transactions.

Interpretation of India's rules on the matter can vary. For instance, disclosure as related party payments is required when one party can control or exert significant influence over the other through involvement in its financial and operational decisions.