BENGALURU (Reuters) - Hindenburg Research said on Wednesday it held short positions in Adani Group, accusing the Indian conglomerate of improper extensive use of entities set up in offshore tax havens and expressing concern about high debt levels.

The group, which is led by Gautam Adani, the world's third richest man according to Forbes, dismissed the U.S. short-seller's claims as baseless.

The report, which comes days ahead of a $2.5 billion share offering by flagship firm Adani Enterprises, sparked sharp falls in shares of Adani group firms.

Hindenburg, which has short positions in Adani companies through U.S.-traded bonds and non-Indian-traded derivative instruments, said key listed companies in the group had "substantial debt" which has put the entire group on a "precarious financial footing".

It also said that seven Adani listed companies have an 85% downside on a fundamental basis due to what it called "sky-high valuations".

Adani Group's Chief Financial Officer, Jugeshinder Singh, said in a statement that the company was shocked by the report, calling it a "malicious combination of selective misinformation and stale, baseless and discredited allegations."

"The timing of the report’s publication clearly betrays a brazen, mala fide intention to undermine the Adani Group’s reputation with the principal objective of damaging the upcoming follow-on Public Offering from Adani Enterprises," it added.

"The Group has always been in compliance with all laws."

Hindenburg said its report was based on an investigation over two years that involved speaking with dozens of individuals, including former Adani Group executives as well as a review of documents.

India's capital markets regulator, the Securities and Exchange Board of India, did not immediately respond to a request for comment.

Adani has repeatedly dismissed debt concerns. Singh told media on Jan. 21 "Nobody has raised debt concerns to us. No single investor has."

In the wake of the Hindenburg report, shares in Adani Ports And Special Economic Zone fell 7.3% to their lowest level since early July. Adani Enterprises dropped 3.7% to a near three-month low.

Adani-owned cement firms ACC and Ambuja Cements , which it acquired from Switzerland's (SIX:) last year in a $10.5 billion deal, fell 7.2% and 9.7% respectively on Wednesday.

GRAPHIC - Adani Group stocks: Market cap and price movement Adani Group stocks: Market cap and price movement

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Hindenburg's report said that five of seven key listed Adani companies have reported current ratios - a measure of liquid assets minus near-term liabilities - below 1. This, the short-seller said, suggested "a heightened short-term liquidity risk".

Adani Group's total gross debt in the financial year ending March 31, 2022, rose 40% to 2.2 trillion rupees.

Refinitiv data shows that debt at Adani Group's seven key listed Adani companies exceeds equity, with debt at Adani Green Energy Ltd exceeding equity by more than 2,000%.

CreditSights, part of the Fitch Group, described the group last September as "overleveraged" and said it had concerns about its debt. While the report later corrected some calculation errors, CreditSights said it maintained its concerns about Adani's leverage.

Hindenburg is known for shorting electric truck maker Nikola Corp and Twitter though it later reversed its position in Twitter.

Shares in Adani Enterprises surged 125% in 2022, while other group companies, including power and gas units, rose more than 100%.