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Hindenburg bet against India’s Adani puzzles rival U.S. short sellers

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Feb 1 (Reuters) – When Hindenburg Research revealed a short position in Adani Group last week, some U.S. investors said they were intrigued about the actual mechanics of its trade, because Indian securities rules make it hard for foreigners to bet against companies there.

Hindenburg’s bet has been lucrative so far. Its allegations, which the Indian conglomerate has denied, have wiped out more than $80 billion of market value from its seven listed companies and knocked billionaire Gautam Adani from his perch as the world’s third-richest man. On Wednesday, a $2.5 billion sale of shares by one of its companies Adani Enterprises ADEL.NS was called off.

The short seller has said it held its position, which profits from the fall in the value of Adani Group shares and bonds, “through U.S.-traded bonds and non-Indian-traded derivatives, along with other non-Indian-traded reference securities.” But it has revealed little else about the size of its bets and the kind of derivatives and reference securities it used, leaving rivals wondering how the trade worked.

“I wanted to short it myself, but I was not able to find a way to do it with my prime broker,” said Citron Research founder Andrew Left, referring to Adani Enterprises and other companies .

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Hindenburg declined to comment to Reuters on the method it used to place its bets against Adani. Adani Group and the stock market regulator the Securities and Exchange Board of India (SEBI) did not respond to a request for comment.

DIFFICULT TO SHORT

Typically, investors who want to bet that the company’s stock will fall borrow shares in the market and sell them, hoping to buy them back at a lower price, in a practice called short selling.

Short sellers such as Hindenburg like to build positions quietly before unveiling their thesis about the company to maximize profits. Discretion is necessary for them, as word of their presence in the stock sometimes can be enough to cause the shares to fall.

In India, however, securities rules make it hard to quietly build positions. Institutional investors are required to disclose their short positions upfront and there are other restrictions and registration requirements on foreign investors.

With the Adani Group, there are added complications: the shareholding is concentrated in the hands of the Adani family and its shares do not trade on exchanges abroad.

Nathan Anderson, Hindenburg’s founder, has been coy even with peers about his bet against Adani. Left and Carson Block, the founder of Muddy Waters Research and another prominent short seller, told Reuters that they got a single word response – ‘thanks’ – to messages of congratulations they sent to Anderson, when usually they would talk shop.

Cracking the code of how Hindenburg did the trade could lead to more short sellers taking positions against Indian companies, which have been rare, analysts said.

“Once these things (short-seller attacks) begin there are others who could be looking,” said Amit Tandon, managing director of proxy and governance firm Institutional Investor Advisory Services (IiAS) in India.

DERIVATIVE TRADES

Reuters could not learn details of Hindenburg’s trades. But several bankers familiar with trading in Indian securities said the more profitable piece of the short seller’s bet would likely lie in the derivative trades it had placed.

Some of Adani’s U.S. dollar corporate bonds , , fell 15-20 cents in the days after the report was released, which would make that bet profitable.

But there are limits. Only a few billion dollars of bonds in total were outstanding and they were not easily available to borrow, one debt banker said.

A more profitable way, these bankers said, would be to place the bet via participatory notes, or P-notes, which are lightly regulated offshore derivatives based off shares of Indian companies.

The entities that create the P-notes are registered with the Indian stock market regulator, but anyone can invest in them without having to directly register with SEBI. An investor can further use intermediaries to obscure its position.

Moreover, the market for P-notes is large. Billions of dollars’ worth of P-notes are traded every year, regulatory data shows, making it possible to place large bets, the bankers said.

(This story has been refiled to add dropped word ‘to’ in the lead paragraph)

Reporting by Shankar Ramakrishnan, Svea Herbst-Bayliss and Carolina Mandl; additional reporting by Jayshree Pyasi in Mumbai and Anshuman Daga in Singapore; Editing by Paritosh Bansal and Anna Driver

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Musk bullish on Tesla sales as price cuts boost demand

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Jan 25 (Reuters) – Tesla Inc’s (TSLA.O) aggressive price cuts have ignited demand for its electric vehicles, Chief Executive Elon Musk said on Wednesday, playing down concerns that a weak economy would throttle buyers’ interest.

The company slightly beat Wall Street targets for fourth-quarter revenue and profit earlier on Wednesday despite a sharp decline in vehicle profit margins, and it sought to reassure investors that it can cut costs to cope with recession and as competition intensifies in the year ahead.

Deep price cuts this month have positioned Tesla as the initiator of a price war, but its forecast of a 37% rise in car volume for the year, to 1.8 million vehicles, was down from 2022’s pace.

However, Musk, who has missed his own ambitious sales targets for Tesla in recent years, said 2023 deliveries could hit 2 million vehicles, absent external disruption.

Tesla’s sales prospects, as it confronts a weaker economy, are a key focus for investors. The company said it maintains a long-term target of a compounded 50% annual rise in sales.

Musk addressed the issue at the start of a call with investors and analysts.

“These price changes really make a difference for the average consumer,” he said, adding that vehicle orders were roughly double production in January, leading the automaker to make small price increases for the Model Y SUV.

He said he expected a “pretty difficult recession this year,” but demand for Tesla vehicles “will be good despite probably a contraction in the automotive market as a whole.”

Shares rose 5.3% in extended trading.

CYBERTRUCK

The company is relying on older products and Musk said its Cybertruck, its next new electric pickup truck, would not begin volume production until next year. Reuters in November reported that the highly anticipated model would not be produced in volume until late this year.

Tesla will detail plans for a “next-generation vehicle platform” at its investor day in March.

Tesla’s vehicles “are all in desperate need of updates beyond software,” said Jessica Caldwell, Edmunds’ executive director of insights. She said Tesla will largely depend on the cheaper unit as well as Model 3 and Model Y to bring EVs to the masses.

“It’s unlikely that the Cybertruck will attempt to achieve mass-market volumes like the Detroit competitors.”

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[1/5] A Tesla supercharging station is seen in the early morning sun, in Kettleman City, California, U.S., January 25, 2023. REUTERS/Mike Blake

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Analysts said Tesla’s goal is bullish given the macroeconomic uncertainties.

“I think that you’re going to see some severe demand destruction across consumer spending and I think cars are going to take a big hit,” Edward Moya, senior market analyst at OANDA, said.

Tesla said it does not expect meaningful near-term volume growth from China, since its Shanghai factory was running near full capacity, rebounding from production challenges last year.

“Even a small cooling of demand will have significant implications for the bottom line,” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown.

Tesla said that its automotive gross margins, which dropped to a two-year low of 25.9% in the reported quarter, were pressured by the costs of ramping up battery production and new factories in Berlin and Texas, as well as higher raw material, commodity, logistics and warranty costs.

Tesla expected its automotive gross margin to remain above 20%.

Margins generally are expected to be under further pressure from its aggressive price cuts. Tesla, which had made a series of price increases since early 2021, reversed course and offered discounts in December in the United States, followed by price cuts of as much as 20% this month.

Analysts had said Tesla’s profitability gave it room to cut prices and pressure rivals. The company’s $9,000 in net profit per vehicle in the past quarter was more than seven times the comparable figure for Toyota Motor Corp (7203.T) in the third quarter. But it was down from almost $9,700 in the third quarter.

“In severe recessions, cash is king, big time,” Musk said, adding that Tesla is well positioned to cope with an economic downturn because of its $20 billion of cash.

The company’s stock posted its worst drop last year, hit by demand worries and Musk’s acquisition of Twitter, which fueled investor concerns he would be distracted from running Tesla.

Musk dismissed surveys that suggest his political comments on Twitter are damaging the Tesla brand. “I might not be popular” with some, he said, “but for the vast majority of people, my follow count speaks for itself.” He has 127 million followers.

Revenue was $24.32 billion for the three months ended Dec. 31, compared with analysts’ average estimate of $24.16 billion, according to IBES data from Refinitiv.

Tesla’s full-year earnings were bolstered by $1.78 billion in regulatory credits, up 21% from a year earlier.

Adjusted earnings per share of $1.19 topped the Wall Street analyst average of $1.13.

It ended the fourth quarter with 13 days’ worth of vehicles in inventory, more than four times higher than the start of 2022, and a record $12.8 billion in value.

Reporting by Hyunjoo Jin in San Francisco and Akash Sriram in Bengaluru, Additinoal reporting by Joe White and Ben Klayman in Detroit and Kevin Krolicki in Singapore
Writing by Peter Henderson
Editing by Sriraj Kalluvila, Matthew Lewis, Sam Holmes and David Goodman

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Analysis: As U.S. stocks rip higher, investors hunt for signs of market bottom

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NEW YORK, Oct 19 (Reuters) – Some gauges of the stock market’s health are showing that the latest rally in U.S. equities may be the start of a sustained move higher, though many investors are hesitant to jump on board until there are signs inflation is cooling.

Few can blame them for being skeptical. The current gain – which has seen the S&P 500 bounce about 6.5% last week’s fresh intraday low for 2022 – comes on the heels of several rebounds throughout the year that eventually crumbled. Meanwhile, markets have been gripped by stomach churning volatility lately that has wrongfooted bulls and bears alike.

If anything, the macroeconomic picture has only grown more dire, as stronger-than-expected U.S. inflation ratchets up expectations for Fed hawkishness and recession fears grow, fueling investor reluctance to participate in the recent upswing.

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Still, there have been glimmers of hope. Some gauges that flashed warnings throughout the year ahead are more positive, while the S&P 500’s recent pattern of big upside moves echoes those seen in prior market bottoms. Some standout U.S. earnings reports and ebbing worries around systemic risk around Britain’s budget woes have also underpinned the rally.

“There are some signs of a bottom,” said Ed Clissold, chief U.S. strategist at Ned Davis Research. “In terms of whether or not it is the bottom, there is still more to prove for the market.”

The S&P 500 has bounced repeatedly this year only to hit new lows

Improving market breadth, which shows whether a significant amount of stocks are moving in unison, is one signal that has heartened investors.

Just 34% of stocks hit new 52-week lows last week along with the S&P 500’s low, according to Todd Sohn, technical strategist at Strategas, compared to 43% when the index made its low on June 16.

At the same time, measures of investor sentiment – including a monthly fund manager survey by Bank of America Global Research – show the highest pessimism in years, a contrarian indicator that has been a bullish signal for stocks historically.

The crowd sentiment poll compiled by Ned Davis Research, a composite indicator that includes investor surveys, option data and asset analysis, recently fell to a level that had coincided with stock reversals in March 2020 and 2011.

“If we can get some better news on the economic/inflation/Fed front there could be a pretty powerful rally,” Clissold said.

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Mark Hackett, chief of investment research at Nationwide, points to the S&P 500 posting five days of gains of about 2% or more in the past month through Monday, noting a similar pattern occurred ahead of bottoms in 2020 and 2009.

Widespread investor pessimism, improved valuations and a seasonally strong period for stocks are among factors leading Hackett to conclude that “we are awfully close to the bottom assuming we don’t have some sort of massive deterioration from here.”

Morgan Stanley strategist Michael Wilson, who has been bearish on stocks throughout the year, this week said a “tradable tactical rally looks likely,” with S&P 500 rising to as high as 4,000 “as good a guess as any.” The index closed at 3,719.98 on Tuesday.

Not all indicators are telling a bullish story, including the comparatively contained Cboe Volatility Index (.VIX), known as Wall Street’s fear gauge. Reversals in stocks since 1990 have come after the index hits an average of 37, which has signaled a bout of fearful selling that then paves the way for bullish investors to take the market higher.

However, the index has not been above that level since March even as the S&P 500 continued making new lows. It was last around 30.

“What’s happening is the VIX is in this high but not super-high range and you never get that complete ‘pukage’ in the markets,” said Michael Purves, chief executive of Tallbacken Capital.

VIX is above longterm median but below levels reached in other bear markets

Sohn, of Strategas, is also eyeing the balance between puts, which are typically bought for downside protection, and calls. The put/call ratio is yet to approach a 10-day average of at least 1.2 that has historically indicated that “you are more in the ballpark of panic and fear and close to a market low,” he said.

The current bear market has also been less severe than many past downturns. The S&P 500 slid as much as 25.4% this year, while bear markets since 1929 have seen an average decline of 35%, according to BofA.

Reuters Graphics Reuters Graphics

Markets have bottomed when “investors have begun to contemplate materially looser monetary policy over the next six to 12 months, when a trough for economic activity is in sight, or when valuations already fully reflect a credible ‘bear case’ scenario,” analysts at UBS Global Wealth Management wrote on Monday.

“Today, we do not believe these conditions have been fulfilled.”

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Reporting by Lewis Krauskopf; Additional reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Josie Kao

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U.S. Treasury asks major banks if it should buy back bonds

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Oct 14 (Reuters) – The U.S. Treasury Department is asking primary dealers of U.S. Treasuries whether the government should buy back some of its bonds to improve liquidity in the $24 trillion market.

Liquidity in the world’s largest bond market has deteriorated this year partly because of rising volatility as the Federal Reserve rapidly raises interest rates to bring down inflation.

The central bank, which had bought government bonds during the COVID-19 pandemic to stimulate the economy, is now also reducing the size of its balance sheet by letting its bonds reach maturity without buying more, a move which investors fear could exacerbate price swings.

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The Treasuries market has swelled from $5 trillion in 2007 and $17 trillion in early 2020, while banks are facing more regulatory constraints that they say make it more difficult to intermediate trades.

The Treasury is asking dealers about the specifics of how buybacks could work “in order to better assess the merits and limitations of implementing a buyback program.”

These include how much it would need to buy in so-called off-the-run Treasuries, which are older and less liquid issues, in order to “meaningfully” improve liquidity in these securities.

The Treasury is also querying whether reduced volatility in the issuance of Treasury bills as a result of buybacks made for cash and maturity management purposes could be a “meaningful benefit for Treasury or investors.”

It is further asking about the costs and benefits of funding repurchases of older debt with increased issuance of so-called on-the-run securities, which are the most liquid and current issue.

“The Treasury is acknowledging the decline in liquidity and they’re hearing what the street has been saying,” said Calvin Norris, portfolio manager & US rates strategist at Aegon Asset Management. “I think they’re investigating whether some of these measures could help to improve the situation.”

He said buying back off-the-run Treasuries could potentially increase liquidity of outstanding issues and buyback mechanisms could help contain price swings for Treasury bills, which are short-term securities.

However, when it comes to longer-dated government bonds, investors have noted that a major constraint for liquidity is the result of a rule introduced by the Federal Reserve following the 2008 financial crisis which requires dealers to hold capital against Treasuries, limiting their ability to take on risk, particularly at times of high volatility.

“The underlying cause of the lack of liquidity is that banks – due to their supplementary leverage ratios being capped – don’t have the ability to take on more Treasuries. I view that as the most significant issue right now,” said Norris.

The Fed in April 2020 temporarily excluded Treasuries and central bank deposits from the supplementary leverage ratio, a capital adequacy measure, as an excess of bank deposits and Treasury bonds raised bank capital requirements on what are viewed as safe assets. But it let that exclusion expire and big banks had to resume holding an extra layer of loss-absorbing capital against Treasuries and central bank deposits.

The Treasury Borrowing Advisory Committee, a group of banks and investors that advise the government on its funding, has said that Treasury buybacks could enhance market liquidity and dampen swings in Treasury bill issuance and cash balances.

It added, however, that the need to finance buybacks with increased issuance of new securities could increase yields and be at odds with the Treasury’s strategy of predictable debt management if the repurchases were too variable in size or timing.

The Treasury is posing the questions as part of its regular survey of dealers before each of its quarterly refunding announcements.

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Reporting By Karen Brettell and Davide Barbuscia; Editing by Chizu Nomiyama and Chris Reese

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OPEC+ oil output cut shows widening rift between Biden and Saudi royals

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WASHINGTON/LONDON, Oct 8 (Reuters) – The OPEC+ organization’s decision this week to cut oil production despite stiff U.S. opposition has further strained already tense relations between President Joe Biden’s White House and Saudi Arabia’s royal family, once one of Washington’s staunchest Middle East allies, according to interviews with about a dozen government officials and experts in Washington and the Gulf.

The White House pushed hard to prevent the OPEC output cut, these sources said. Biden hopes to keep U.S. gasoline prices from spiking again ahead of midterm elections in which his Democratic party is struggling to maintain control of the U.S. Congress. Washington also wants to limit Russia’s energy revenue during the Ukraine war.

The U.S. administration lobbied OPEC+ for weeks. In recent days, senior U.S. officials from energy, foreign policy and economic teams urged their foreign counterparts to vote against an output cut, according to two sources familiar with the discussions.

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Amos Hochstein, Biden’s top energy envoy, along with national security official Brett McGurk and the administration’s special envoy to Yemen Tim Lenderking, traveled to Saudi Arabia last month to discuss energy issues, including the OPEC+ decision.

They failed to prevent an output cut, just as Biden did after his own July visit.

US officials “tried to position it as ‘us versus Russia,'” said one source briefed on the discussions, telling Saudi officials they needed to make a choice.

That argument failed, the source said, adding that the Saudis said that if the United States wanted more oil on the markets, it should start producing more of its own.

The United States is the world’s No. 1 oil producer and also its top consumer, according to data from the U.S. Energy Information Administration.

The Saudi government media office CIC did not respond to Reuters emailed requests for comment about the discussions.

“We are concerned first and foremost with the interests of the Kingdom of Saudi Arabia and then the interests of the countries that trusted us and are members of OPEC and the OPEC + alliance,” Energy Minister Prince Abdulaziz told Saudi TV Wednesday.

OPEC weighs its interests with “those of the world because we have an interest in supporting the growth of the global economy and providing energy supplies in the best way,” he said.

Washington’s handling of the Iran nuclear deal and withdrawal of support for a Saudi-led coalition’s offensive military operations in Yemen have upset Saudi officials, as have actions against Russia after the February 2022 invasion of Ukraine.

A U.S. push for a price cap on Russian oil is causing uncertainty, Energy Minister Prince Abdulaziz bin Salman told Bloomberg TV after the OPEC cut, noting the “lack of details and the lack of clarity” about how it will be implemented.

A source briefed by Saudi officials said the kingdom views it as “a non-market price-control mechanism, that could be used by a cartel of consumers against producers.”

A Biden-directed sale of 180 million barrels of oil in March from the U.S. Strategic Petroleum Reserve put downward pressure on oil prices. In March, OPEC+ said it would stop using data from the International Energy Agency (IEA), a Western oil watchdog, due to Saudi-led concerns the United States had too much influence.

On Thursday, Biden called the Saudi decision “a disappointment”, adding Washington could take further action in the oil market.

“Look it’s clear that OPEC Plus is aligning with Russia,” White House press secretary Karine Jean-Pierre said on Wednesday. She would not elaborate on how the output cut would affect U.S.-Saudi relations.
In the U.S. Congress, Biden’s Democrats called for the withdrawal of U.S. troops from Saudi Arabia and spoke about taking back weapons.

“I thought the whole point of selling arms to the Gulf States despite their human rights abuses, nonsensical Yemen War, working against US interests in Libya, Sudan etc, was that when an international crisis came, the Gulf could choose America over Russia/China,” Senator Chris Murphy, a Democrat, said on Twitter.

Saudi minister of state for foreign affairs Adel Al-Jubeir, said in remarks to Fox News on Friday when asked about the U.S. criticism: “Saudi Arabia does not politicize oil or oil decisions.”

“With due respect, the reason you have high prices in the United States is because you have a refining shortage that has been in existence for more than 20 years,” he added.

CROWN PRINCE AND BIDEN

Weeks after Biden took office as president, Washington released a report tying the 2018 killing of journalist Jamal Khashoggi to Crown Prince Mohammed bin Salman.

The prince, son of King Salman, 86, has denied ordering the killing but acknowledged it took place “under my watch”.

The prince became prime minister last month and his lawyers have been arguing in a U.S. court that this makes him immune from prosecution in the Khashoggi death.

Biden’s trip to Jeddah, Saudi Arabia, in July for a Gulf summit was aimed at patching up relations, but he also levied harsh criticism of bin Salman over Khashoggi’s murder.

Ben Cahill, a senior fellow at the Center for Strategic and International Studies, said the Saudis hope the production cuts will give OPEC+ control over oil prices and ensure enough oil revenue to protect their country from a recession.

“The macroeconomic risk is getting worse all the time, so they have to respond,” Cahill said. “They are aware that a cut will irritate Washington, but they are managing the market.”

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Reporting By Steve Holland, Timothy Gardner and Jarrett Renshaw in Washington; Dmitry Zhdannikov in London, Aziz El Yaakoubi in Riyadh, Ghaida Ghantous in Dubai and Ahmed Tolba in Cairo. Editing by Heather Timmons, David Gregorio and Jane Merriman

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Credit Suisse pays down debt to calm investor fears

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  • To buy back up to $3 billion in debt
  • Seen as bid to reassure nervous investors
  • Move comes weeks ahead of planned overhaul
  • Shares up as much as 3% in early trade

ZURICH, Oct 7 (Reuters) – Credit Suisse (CSGN.S) will buy back up to 3 billion Swiss francs ($3 billion) of debt, the embattled Swiss bank said on Friday, making a show of strength as it seeks to reassure investors after a tumultuous week.

The move trims the bank’s debts and is an attempt to bolster confidence after steep falls in its stock price and bonds. Unsubstantiated rumours that its future was in doubt have swirled on social media amid concern it may need to raise billions of francs in fresh capital.

One of the largest banks in Europe, Credit Suisse is embarking on a radical turnaround after losing more than $5 billion from the collapse of investment firm Archegos last year, when it also had to suspend client funds linked to failed financier Greensill.

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Bank executives spent last weekend reassuring large clients and investors about its financial strength, seeking to dispel speculation about its future.

CEO Ulrich Koerner also told staff in a memo that it has sufficient capital and liquidity. read more

But his words only fuelled rumours about the bank, as a social media storm gathered pace, triggering a sell-off of its stock.

The bank said the debt buyback would “allow us to take advantage of market conditions to repurchase debt at attractive prices”.

Investors took heart. Credit Suisse shares gained as much as 3% in early trading on Friday, while the price of its euro-denominated bonds rose.

“It’s an opportunistic move to take advantage of market conditions that might be reassuring to some investors,” said Vontobel analyst Andreas Venditti. “If bought below par, a gain results that will increase capital slightly.”

TROUBLED CHAPTER

Earlier this week, in an unusual step, the Swiss National Bank, which oversees the financial stability of systemically important banks in Switzerland, said it was monitoring the situation at Credit Suisse.

Banks are deemed systemically important if their failure would undermine the Swiss economy and financial system.

The move is reminiscent of a multi-billion-euro debt buyback by Deutsche Bank in 2016, when it faced a similar crisis and doubts over its future.

Dixit Joshi, a former Deutsche executive, has recently joined Credit Suisse as finance chief.

Zuercher Kantonalbank said the bonds are currently trading at a high discount, which allows Credit Suisse to cut debt at a low cost. Analyst Christian Schmidiger said the move was also a “signal that Credit Suisse has sufficient liquidity”.

Credit Suisse said it was making a 1 billion euro cash tender offer in relation to eight euro or pound sterling denominated senior debt securities and another offer to buy back 12 U.S. dollar denominated senior debt securities for up to $2 billion.

The developments unfolded after sources recently told Reuters that Credit Suisse was sounding out investors for fresh cash, approaching them for the fourth time in around seven years.

Under a restructuring launched by Chairman Axel Lehmann, the bank envisions shrinking its investment bank to focus even more on its flagship wealth management business. Chiefly, he hopes to close a troubled chapter for the bank and repair its reputation.

Over the past three quarters alone, losses have added up to nearly 4 billion Swiss francs. Given the uncertainties, the bank’s financing costs have surged.

The bank is due to present its new business strategy on Oct. 27, when it announces third-quarter results.

Rating agency Moody’s Investors Service expects losses for Credit Suisse to swell to $3 billion by year-end, Moody’s lead analyst on the bank told Reuters on Thursday. read more

The bank has also said it is looking to sell its upmarket Savoy Hotel, one of the best-known hotels in Zurich. read more

($1 = 0.9897 Swiss francs)

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Writing by John Revill and John O’Donnell; additional reporting by Amanda Cooper in London; editing by Mark Potter and Jason Neely

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Twitter whistleblower could help Musk by adding ‘volatility’ to legal battle

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An image of Elon Musk is seen on a smartphone placed on printed Twitter logos in this picture illustration taken April 28, 2022. REUTERS/Dado Ruvic/Illustration/

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WILMINGTON, Del., Aug 23 (Reuters) – A whistleblower’s complaint that Twitter Inc (TWTR.N) misled federal regulators about the company’s security risks could provide Elon Musk with fresh ammunition in his bid to get out of buying the company for $44 billion.

Until now, Musk’s legal showdown with Twitter has primarily centered around claims that the company misled the billionaire about the number of bot and spam accounts on its platform.

The whistleblower complaint by Twitter’s former security chief Peiter Zatko gives Musk new angles to pursue in his legal battle, such as claims that Twitter failed to disclose weaknesses in its security and data privacy.

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It provides “a different basis for fraud,” said Ann Lipton, a professor at Tulane Law School.

It is not clear if and how Musk’s team will use the whistleblower’s information, although Musk’s lawyer, Alex Spiro with Quinn Emanuel Urquhart & Sullivan, said on Tuesday that a subpoena had been issued to Zatko.

“We found his exit and that of other key employees curious in light of what we have been finding,” Spiro said in a statement.

Legal experts said the whistleblower complaint introduced uncertainty to Musk’s showdown with Twitter, rather than dramatically transforming a case that corporate law specialists have said favors Twitter.

“Volatility is helpful if you’re not playing a strong hand. It creates some possibility that something crazy might happen,” said Eric Talley, a professor at Columbia Law School, of the whistleblower complaint.

Twitter’s stock was down about 5.9% in late trading at $40.44 a share.

‘ADDING TEXTURE’

Musk, the world’s richest person and the chief executive of electric vehicle maker Tesla Inc(TSLA.O), told Twitter in July that he was ending the agreement to buy the company for $54.20 per share.

Musk accused Twitter of fraudulently misrepresenting the true number of spam and bot accounts on its social media platform, which the company has estimated at 5% in corporate filings. Musk said he relied on those filings when he offered to buy the company.

Twitter and Musk have since sued each other, with Twitter asking a judge on the Delaware Court of Chancery to order Musk to close the deal. A trial is set to start on Oct. 17.

On Wednesday, Chancellor Kathaleen McCormick will hear arguments by the two sides over access to documents as part of the discovery process. Legal experts said Musk might raise the whistleblower complaint and indicate how his team might use the allegations.

Zatko’s whistleblower complaint, which was made public on Tuesday, claimed that Twitter had falsely told regulators that it had a solid security plan.

Zatko said he had warned colleagues that half the company’s servers were running out-of-date and vulnerable software, according to a redacted version of his complaint. read more

Twitter Chief Executive Parag Agrawal told employees in a memo that the company is reviewing the claims. “What we have seen so far is a false narrative that is riddled with inconsistencies and inaccuracies, and presented without important context,” Agrawal said, according to a CNN report.

Claims that Twitter failed to disclose security and privacy risks could be easier for Musk to prove than allegations that Twitter misrepresented the number of spam accounts, legal experts said.

To prevail on the spam claim, Musk must show that he relied on Twitter’s disclosures about spam accounts.

Corporate deal specialists have said this will be tough since Musk cited defeating spam as the very reason for buying the company.

By contrast, Zatko’s allegations that the company withheld security information from investors and regulators could qualify as an omission, which would not require Musk to show reliance on the company’s disclosures.

Musk, however, would still need to prove that Twitter’s allegedly weak defenses against hackers was a material risk that was not disclosed to investors.

And to walk away from the acquisition without paying a $1 billion termination fee, he would have to show the omission amounted to a material adverse effect on Twitter.

A material adverse effect (MAE) is an event that significantly reduces the long-term value of an acquisition.

Talley said whether Zatko’s claims amount to an MAE could be an issue for the trial.

“This doesn’t open a brand new battlefront,” said Talley. “It’s adding texture to existing ones.”

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Editing by Noeleen Walder and Deepa Babington

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Tom Hals

Thomson Reuters

Award-winning reporter covering U.S. courts and law from the COVID-19 pandemic to high-profile criminal trials and Wall Street’s biggest failures with more than two decades of experience in international financial news in Asia and Europe.

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Southeast Asia’s Grab slumps in U.S. debut after record SPAC deal

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  • Grab listed on Thursday after $40 bln deal with Altimeter
  • Debut marks biggest U.S. listing by a Southeast Asian firm
  • Early backers SoftBank, Didi set for payday bonanza
  • Bell-ringing ceremony takes place in Singapore

SINGAPORE, Dec 2 (Reuters) – Shares in Grab , Southeast Asia’s biggest ride-hailing and delivery firm, slid more than 20% in their Nasdaq debut on Thursday following the company’s record $40 billion merger with a blank-check company.

Grab’s shares rose as much as 21% minutes after the listing before retreating to trade 23% lower at $8.51 by 1834 GMT.

“The price makes no difference to me. I’m going to celebrate tonight and get back to work tomorrow,” Chief Executive Anthony Tan told Reuters just after the shares started trading.

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The backdoor listing on Nasdaq marks the high point for the nine-year-old Singapore company that began as a ride-hailing app and now operates across 465 cities in eight countries, offering food deliveries, payments, insurance and investment products.

Grab kicked off the biggest U.S. listing by a Southeast Asian company with a bell-ringing event in Singapore, hosted by Nasdaq and Grab’s executives.

The event was attended by about 250 people including its investors, drivers, merchants and employees, with many dressed in the company’s signature green.

Thunderous handclaps reverberated in the hotel ballroom as an emotional Tan thanked them for putting Grab and Southeast Asia’s tech economy on the global map.

CEO Tan and Tan Hooi Ling developed the company from an idea for a Harvard Business School venture competition in 2011. The two Tans are not related.

The listing comes after Grab’s April agreement to merge with U.S. tech investor Altimeter Capital Management’s SPAC, Altimeter Growth Corp (AGC.O) and raise $4.5 billion, including $750 million from Altimeter.

Grab’s flotation “will provide a bigger cash buffer” to its “cash burn”, S&P Global Ratings said in a note. But it said the company’s “credit quality continues to be constrained by its loss-making operations, and free operating cash flows could be negative over the next 12 months.”

Southeast Asia’s internet economy is forecast to double to $360 billion in gross merchandise value by 2025, prompting Grab’s rivals, including regional internet firm Sea Ltd (SE.N) and Indonesia’s GoTo Group, to bulk up.

GoTo plans a local IPO in 2022 after completing an expected $2 billion private fundraising, sources have told Reuters. A U.S. listing will follow the Jakarta offering.

“Longer term, we’re really excited about Grab Financial Group,” said Chris Conforti, partner at Altimeter Capital, referring to Grab’s financial services unit. “I think the bell curve on that is much wider in terms of what the outcome could be, but it could be extremely large.”

BONANZA FOR BACKERS

CEO Tan, 39, expanded Grab into a regional operation with a range of services, after launching it as a taxi app in Malaysia in 2012. It later moved its headquarters to Singapore.

“What we have shown to the world is that home grown tech companies can develop great technology that can compete globally, even when international players are in town,” Tan told Reuters in an interview on Wednesday. “We can compete and win.”

He will control 60.4% of voting rights along with Grab’s co-founder, and president Ming Maa, but hold only a 3.3% stake with them.

Grab’s listing brings a payday bonanza to early backers such as Japan’s SoftBank (9984.T) and Chinese ride-hailing giant Didi Chuxing, which invested as early as 2014.

They were later joined by the likes of Toyota Motor Corp (7203.T), Microsoft Corp (MSFT.O) and Japanese megabank MUFG (8306.T). Uber became a Grab shareholder in 2018 after selling its Southeast Asian business to Grab following a five-year battle.

In September, Grab cut its full-year adjusted net sales forecasts, citing renewed uncertainty over pandemic curbs on movement.

Third-quarter revenue fell 9% from a year earlier and its adjusted loss before interest, taxes, depreciation, and amortisation (EBITDA) widened 66% to $212 million. GMV in the quarter rose to a record $4 billion.

It aims to turn profitable on an EBITDA basis in 2023.

JPMorgan and Morgan Stanley were the lead placement agents on the fundraising, while Evercore and UBS were the co-placement agents.

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Reporting by Anshuman Daga and Aradhana Aravindan; Additional reporting by Noor Zainab Hussain in Bengaluru; Editing by William Mallard, Kirsten Donovan, Emelia Sithole-Matarise and Susan Fenton

Our Standards: The Thomson Reuters Trust Principles.

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Cryptocurrencies brace for winter, virtual Adidas and a bitcoin city

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A representation of the virtual cryptocurrency Bitcoin is seen in this picture illustration taken October 19, 2021. REUTERS/Edgar Su/File Photo

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  • Omicron worries dent major cryptocurrencies
  • Ether and other DeFi, metaverse-linked tokens outperform bitcoin
  • El Salvador plans to build “Bitcoin City”
  • Adidas partnering with Coinbase

Nov 29 (Reuters) – Cryptocurrencies survived one of the largest market shocks since the earliest days of the pandemic last week, with El Salvador a notable dip buyer, while investors decided not to share Adidas’ excitement over a foray into the buzzy metaverse.

El Salvador’s plans to build the world’s first “Bitcoin City” and Adidas’s entry were the bright spots for digital assets in a week that saw major cryptocurrencies clobbered by fears over the new coronavirus variant Omicron.

Bitcoin was down 0.5% on Monday and has lost about 17% of its value from a record $69,000 over the past 19 days. But rival currency ether and tokens linked to the metaverse and decentralized finance applications have fared better.

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Adidas’s move made waves after the German sportswear retailer said it was partnering with Coinbase Global Inc (COIN.O)in a tweet, although Adidas (ADSGn.DE) shares did not join that celebration.

The company also bought a piece of virtual land called “adiVerse” in the blockchain-based world The Sandbox, with the German company hinting it would build that out to offer virtual reality products, and comes at a time it has warned of a sales hit due to supply chain snags.

“That’s something big because it is also a hint of what’s about to hit the fan in a couple of months in the NFT space: the Adidas sneakers and other branded virtual clothes, shoes and objects,” said Ipek Ozkardeskaya, senior analyst at Swissquote.

The price of SAND, the virtual currency used to buy property and other items, jumped 90% to $7.18 on the news, according to CoinGecko, receiving a second boost since Facebook rebranded to Meta Platforms Inc (FB.O) late last month. read more

MANA, the speculative currency used in leading blockchain-based online world Decentraland, surged 36% to $4.90. Land and other items on Decentraland are sold in the form of non-fungible tokens (NFTs).

Besides the selloff triggered by news of Omicron, last week’s biggest headwind to bitcoin and ether came from an Indian government announcement of a bill that would ban most private cryptocurrency transactions by the country’s estimated 15 million to 20 million crypto investors. read more

‘SURVIVE WINTER’

Bitcoin traded around 4,376,477 Indian rupees ($58,296.12) on Indian exchange WazirX, a light premium to prices outside the country, reversing from a 15% discount on Tuesday after the announcement.

“If it is a blanket ban, in combination with China, you’re talking two centres of the world’s population that are effectively frozen out of crypto,” said Simon Peters, crypto analyst at eToro.

Elsewhere, El Salvador’s president announced plans to build the world’s first “Bitcoin City,” funded initially by bitcoin bonds. El Salvador adopted bitcoin as legal tender in September. read more

Average daily trading volumes across all digital asset product types fell by an average of 13% through Oct-end to Nov. 19, while net inflows averaged $203 million, half that in October, according to data from CryptoCompare.

It showed that while assets under management in bitcoin-related products have fallen 9.5% to $48.7 billion in the first three weeks of November – the largest month-on-month fall since July – assets in ether products rose 5.4%.

Decentralized finance-related token Solana (SOL) & Litecoin-based products returned 22.0% and 14.9% respectively in the 30 days to November 19, with daily trading volume in the 21Shares Solana ETP nearly tripling to $6.3 million, CryptoCompare noted.

A patch of virtual real estate in Decentraland sold for a record $2.4 million worth of cryptocurrency on Nov. 23, the buyer – crypto investor Tokens.com (COIN.NLB) – and Decentraland said. read more

Meanwhile, the approaching December holiday season could increase volatility, while the U.S. Federal Reserve’s stimulus taper could be bearish for bitcoin, analysts said.

“There should be more agnostics focusing on the fact we are in a bad part of the cycle for crypto here – the corrections could be epic,” said Brent Donnelly, president at market insights firm Spectra Markets.

“Make sure you can survive winter.”

($1 = 75.08 Indian rupees)

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Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru
Additional reporting by Tom Westbrook in Sydney
Editing by Vidya Ranganathan and

Our Standards: The Thomson Reuters Trust Principles.



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