The Wire Staff 
New Delhi: The Adani Group maintains ties with the controversial contracting firm, Howe Engineering Projects (India) Pvt. Ltd, which is linked to a Taiwanese family, raising governance concerns, as reported by Bloomberg.
Bloomberg reported that the contracting firm contains the core operations of a business called PMC Projects Pvt. Ltd.
PMC Projects, along with two other firms, was accused of inflating the value of imported power and infrastructure goods to the extent of nearly Rs 1,500 crore.
According to the report, in 2014, the Indian government alleged that the firm was being used by billionaire Gautam Adani’s empire to siphon money overseas.
Adani denied all wrongdoing and the probe’s findings were dismissed in 2017 by the adjudicating authority of DRI (Directorate of Revenue Intelligence), which held that all the imports were genuine. It concluded that the value declared was correct and was not required to be re-determined.
Court filings indicate that in April 2016, PMC’s engineering business was integrated into Howe. Recent Bloomberg analyses of filings reveal that Howe continues to serve as an Adani contractor for some of the most significant ports and railway lines currently under construction in India.
Separately, Deloitte’s inability to determine whether Howe should be labelled a related party was why the auditor raised red flags about payments by Adani’s ports company to the contracting firm in May, said the report.
The accounting giant then resigned as the auditor for Adani Ports & Special Economic Zone Ltd. in August, saying it didn’t have sufficiently wide oversight over the broader conglomerate’s accounts.
In January, Hindenburg Research directly called out PMC, in its report, alleging it was an Adani related party “used to suck money out of the Adani Group’s publicly listed entities.” Its report didn’t mention Howe.
The Hindenburg report said that “PMC Projects – a major contractor to the Adani Group – generated Rs 63 Billion ($784 Million) in revenue in the past 12 years. It added that the entity lacks a website. Records indicate its association with Adani, sharing the corporate address and phone number with the conglomerate.
The short-seller had also sought clarification on whether PMC Projects is a “dummy firm” affiliated to the Adani Group.
In an email, a spokesperson for the Adani conglomerate told Bloomberg that Howe and PMC are independently operated and managed companies, aren’t Adani related parties and all transactions are compliant with the law. “The commercial and business transactions undertaken by the Adani entities for project management services were entered into in the ordinary course of business at arm’s length basis,” the statement said.
Interestingly, Chang Chung-Ling’s son owns PMC Projects, according to the US-based short seller.
According to a report by the Organized Crime and Corruption Reporting Project, Chang Chung-Ling has been alleged to have made considerable profits by buying and selling Adani stock through offshore funds.
When companies designate contractors as related parties in their accounting procedures, payments go through scrutiny from auditors and the board. However, as Adani maintains that Howe and PMC are not related parties, the group is exempt from subjecting Howe payments to additional checks.
Bloomberg visited the office of Hi Lingos Co Ltd., where Chung-ling, the father, is the registered owner in Taiwan. The office prominently displayed the Adani logo. An office secretary said that Chung-ling declined an interview. When Bloomberg called a provided number for the son, the person who answered initially questioned the source of the number but later clarified that he was not Chang.
Adani had never publicly disclosed the payments to Howe until Deloitte flagged them in May, the report noted.
About $245 million of refundable deposits was returned by Howe to Adani since then. Contractors typically return these funds once a project is completed or terminated, it noted.
“The question is who is getting the money, what work are they doing for Howe and Adani, how is the money being spent?” Sharmila Gopinath, a specialist advisor for India at the Hong Kong-based Asian Corporate Governance Association, asked Bloomberg. “What reason is there not to disclose these payments when there are obviously deep ties with these people, with the owner?”
Adani says that Howe is not a connected entity, but governance expert Gopinath contends that the significant payments made by Adani to the contractor, whose ultimate owners are Taiwanese associates, should have been declared as related party transactions.
India’s rules on the matter can be open to interpretation; disclosure is required for transactions where one party has the ability to control or significantly influence the other’s financial and operational decisions, Bloomberg said.
Accounting experts suggest that shared resources, employees, or directors overseeing common projects should be treated as related parties, subjecting payments to additional scrutiny from the board and auditors.
Bloomberg cited the filings to highlight a revolving door of employees between Adani, Howe, and PMC, with past directors from Howe and PMC also appointed to Adani group company boards over the years.
Gopinath told Bloomberg that more scrutiny is needed across India to assess payments by listed companies because investor money is involved.