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Hindenburg bet against India’s Adani puzzles rival U.S. short sellers
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
Our Standards: The Thomson Reuters Trust Principles.
Adani hits back at Hindenburg, says it made all disclosures
NEW DELHI, Jan 30 (Reuters) – India’s Adani Group issued a detailed riposte on Sunday to a Hindenburg Research report that sparked a $48 billion rout in its stocks, saying it complies with all local laws and had made the necessary regulatory disclosures.
The conglomerate led by Asia’s richest man, the Indian billionaire Gautam Adani, said last week’s Hindenburg report was intended to enable the U.S.-based short seller to book gains, without citing evidence.
For 60-year-old Adani, the stock market meltdown has been a dramatic setback for a school-dropout who rose swiftly in recent years to become the world’s third richest man, before slipping last week to rank seventh on the Forbes rich list.
Adani Group’s response comes as its flagship company, Adani Enterprises (ADEL.NS), pushes ahead with a $2.5 billion share sale. This has been overshadowed by Hindenburg’s report, which flagged concerns about debt levels and the use of tax havens.
“All transactions entered into by us with entities who qualify as ‘related parties’ under Indian laws and accounting standards have been duly disclosed by us,” Adani said in the 413-page response issued late on Sunday.
“This is rife with conflict of interest and intended only to create a false market in securities to enable Hindenburg, an admitted short seller, to book massive financial gain through wrongful means at the cost of countless investors,” it added.
Hindenburg did not immediately respond to a request for comment on the Adani response on Sunday.
Its report had questioned how the Adani Group has used offshore entities in tax havens such as Mauritius and the Caribbean islands, adding that certain offshore funds and shell companies “surreptitiously” own stock in Adani’s listed firms.
The research report, Adani said, made “misleading claims around offshore entities” without any evidence whatsoever.
Adani said on Thursday that it is considering taking action against Hindenburg, which responded on the same day by saying it would welcome such a move.
Hindenburg’s report also said five of seven key listed Adani companies have reported current ratios, a measure of liquid assets minus near-term liabilities, of below 1 which it said suggested “a heightened short-term liquidity risk”.
It said key listed Adani companies had “substantial debt” which has put the entire group on a “precarious financial footing” and that shares in seven Adani listed companies have an 85% downside due to what it called “sky-high valuations”.
Adani’s response stated that over the past decade, its group companies have “consistently de-levered”.
Defending its practice on pledging shares of its promoters – or key shareholders – the Adani Group said that raising financing against shares as collateral was common practice globally and loans are given by large institutions and banks on the back of thorough credit analysis.
The group added there is a robust disclosure system in place in India and its promoter pledge positions across portfolio companies had dropped from more than 50% in March 2020 in some listed stocks, to less than 20% in December 2022.
‘SAIL THROUGH’
The Hindenburg report, and its fallout, is seen as one of the biggest career challenges to face the billionaire, whose business interests range from ports, airports, mining and power to media and cement.
Adani’s response included more than 350 pages of annexes that included snippets from annual reports, public disclosures and earlier court rulings.
Hindenburg, Adani said, had sought answers to 88 questions in its report, but 65 of them were related to matters that have been disclosed by Adani portfolio companies in annual reports.
The rest, Adani said, relate to public shareholders and third parties, and some were “baseless allegations based on imaginary fact patterns”.
Hindenburg, known for having shorted electric truck maker Nikola Corp (NKLA.O) and Twitter, said it holds short positions in Adani companies through U.S.-traded bonds and non-Indian-traded derivative instruments.
Adani also responded to allegations by Hindenburg relating to the company’s auditors, saying “all these auditors who have been engaged by us have been duly certified and qualified by the relevant statutory bodies.”
Its response comes just hours ahead of India market opening, when the $2.5 billion secondary share sale begins its second day of subscription. Friday’s plunge took Adani Enterprises shares below the issue price, raising doubts about its success.
In a separate statement on Sunday, Adani Group’s chief financial officer Jugeshinder Singh said it is focused on the share sale and is confident it will succeed. He also said its anchor investors have shown faith and remain invested.
“We are confident the FPO (follow-on public offering) will also sail through,” he said.
Reporting by Aditya Kalra, Aditi Shah, Jayshree Upadhyay and Anirudh Saligrama in Bengaluru; Editing by Kevin Liffey and Alexander Smith
Our Standards: The Thomson Reuters Trust Principles.
Adani shares fall further as it weighs legal action against Hindenburg
Chairman and founder of the Adani Group, Gautam Adani, at the News18 Rising India Summit on Feb. 25, 2019, in New Delhi, India. Since becoming a billionaire in 2008, Adani is now one of the richest people in the world, with a $113 billion fortune, according to the Bloomberg Billionaires Index.
Hindustan Times | Hindustan Times | Getty Images
Shares of Adani Group companies continued to see sharp losses for a second consecutive trading session in India, after short seller firm Hindenburg announced its short position in the conglomerate’s firms earlier this week.
In a lengthy report released earlier this week, Hindenburg detailed multiple allegations against the conglomerate’s companies, saying the group has “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.”
Adani rejected the claims in two separate statements, describing the short seller’s claims as an “intentional and reckless attempt by a foreign entity to mislead the investor community and the general public,” according to a media release.
“We are evaluating the relevant provisions under US and Indian laws for remedial and punitive action against Hidenburg Research,” said Adani Group’s head of legal, Jatin Jalundhwala.
Mumbai-listed shares of Adani Enterprises fell more than 9% in India’s trading session on Friday. Adani Transmission fell 19.47%, Adani Green Energy shed 19.89% and Adani Power lost 5%. Adani Port’s share price also dropped 13.8%.
The moves follow Wednesday’s losses after the initial release of Hindenburg’s report. India’s stock market was closed on Thursday.
The short seller firm doubled down on its initial stance after Adani’s responses, emphasizing that the conglomerate has not answered any of the questions raised, adding any lawsuits filed against Hindenburg will be “meritless.”
“If Adani is serious, it should also file suit in the U.S. where we operate. We have a long list of documents we would demand in a legal discovery process,” it said.
“We fully stand by our report and believe any legal action taken against us would be meritless,” it said.
Billionaire investor and CEO of Pershing Square Capital Management, Bill Ackman, voiced his support for the short seller firm in a tweet posted shortly before India’s market open.
“I found the Hindenburg report highly credible and extremely well researched,” he wrote, adding that Adani Group’s response “speaks volumes.”
“Caveat emptor,” he added.
$2.5 billion share offering
The latest back-and-forth between Asia’s richest man Gautam Adani’s group and the short seller firm comes as Adani Enterprises kicked off its bidding for retail investors for its 200 billion rupee ($2.45 billion) secondary share offering on Friday.
The firm last week set a floor price for the offering of 3,112 rupees per share, with a price cap of 3,276 rupees per share, according to a filing.
Reuters reported that anchor investors, institutions that are allotted shares at a fixed price before the offering opens to the public, made bids of shares worth 90 billion rupees and that Malaysia’s Maybank was allocated more than 34% of the shares reserved for institutional investors, while the Abu Dhabi Investment Authority picked up 2.56%.
Since becoming a billionaire in 2008, Adani is now one of the richest people in the world, with a $113 billion fortune, according to the Bloomberg Billionaires Index. His net worth dropped about $7 billion in the year to date, the index showed.
In August last year, the company sought a hostile takeover of Indian media group NDTV, which in a filing said the move was “carried out without any consent” from its founders.
Hindenburg shorts India’s Adani Group, flags debt and accounting concerns
BENGALURU, Jan 25 (Reuters) – Hindenburg Research said on Wednesday it held short positions in India’s Adani Group, accusing the conglomerate of improper extensive use of entities set up in offshore tax havens and expressing concern about high debt levels.
The report, which comes days ahead of a $2.5 billion share offering by flagship firm Adani Enterprises (ADEL.NS), sent shares in Adani group firms sliding.
Hindenburg, a well known U.S. short-seller, said key listed companies in the group controlled by billionaire Gautam Adani 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”.
An Adani spokesperson did not immediately respond to Reuters request for comment on the report, which Hindenburg said was based on research that involved speaking with dozens of individuals, including former Adani Group executives as well as a review of documents.
Hindenburg said it held its short positions through U.S.-traded bonds and non-Indian-traded derivative instruments.
Adani has repeatedly dismissed debt concerns. Adani Chief Financial Officer Jugeshinder Singh told media on Jan. 21 “Nobody has raised debt concerns to us. No single investor has.”
In the wake of the Hindenburg report, Adani Ports And Special Economic Zone (APSE.NS) slid 7.3% to its lowest level since early July, while Adani Enterprises dropped 3.7% to a near three-month low.
Adani-owned cement firms ACC (ACC.NS) and Ambuja Cements (ABUJ.NS) fell 6.7% and 9.7% respectively.
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 all the Adani Group’s seven key listed Adani companies exceeds equity, with debt at Adani Green Energy Ltd (ADNA.NS) 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 over its debt. While the report later corrected some calculation errors, CreditSights said it maintained its concerns over leverage.
Hindenburg is known for shorting electric truck maker Nikola Corp (NKLA.O) 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%.
Reporting by Mrinmay Dey, Chris Thomas and Aditya Kalra; Additional reporting by Miyoung Kim; Editing by Dhanya Ann Thoppil and Edwina Gibbs
Our Standards: The Thomson Reuters Trust Principles.
Adani shares take $7.7bn hit after Hindenburg bets against group
Shares in listed companies tied to India’s sprawling Adani Group shed $7.7bn in value after short-seller Hindenburg Research released a report targeting the conglomerate controlled by billionaire business magnate Gautam Adani.
Shares in seven listed Adani Group companies were down about 4 per cent on average in late-morning trading in Mumbai, with those in flagship business Adani Enterprises falling as much as 3.7 per cent. Those falls brought the combined loss in market capitalisation for Adani Group stocks to about Rs625bn ($7.7bn).
Adani’s businesses are expanding rapidly. The self-made tycoon started as a commodity trader in the 1980s before ultimately building India’s largest private infrastructure group with about a dozen ports and eight airports. The group has multiple subsidiaries spanning sectors including data and defence.
The report comes as Adani, whose net worth of roughly $118bn ranks him as Asia’s richest person, according to Bloomberg, pushes forward with a fundraising to fuel the rapid expansion of his existing industrial and fossil fuel outfits as well as green energy businesses.
Jugeshinder Singh, the chief financial officer of Adani Group, said the conglomerate was “shocked” by the Hindenburg report, describing it as “a malicious combination of selective misinformation and stale, baseless and discredited allegations”.
Singh said the timing of the report, coming days ahead of a follow-on share offer by Adani Enterprises, was intended to “undermine the Adani Group’s reputation” and damage demand for the upcoming offering. He added that the group “has always been in compliance with all laws”.
The report from Hindenburg, published on Wednesday morning ahead of the market opening in Mumbai, asserts that “even if you ignore the findings of our investigation . . . [Adani Group’s] key listed companies have 85 per cent downside purely on a fundamental basis owing to sky-high valuations”.
Hindenburg said it had taken a short position on Adani Group companies “through US-traded bonds and non-Indian-traded derivative instruments”.
The billionaire businessman has maintained that his companies’ valuations are justified.
Adani announced plans last year to increase the amount of freely traded shares in Adani Enterprises after the company’s share price gained more than 3,300 per cent in three years. Public bidding for a share offer by Adani Enterprises that is aiming to raise up to Rs200bn is expected to begin on Friday.
The shareholdings by several Mauritius-based investment funds that have for years held stakes in Adani Enterprises and other listed Adani Group companies have come under scrutiny from Indian regulators in the past.
Analysts have raised concerns over the debt-fuelled growth of Adani Group, noting that the conglomerate’s total debts of almost Rs2tn (about $24bn) are equivalent to nearly seven times pre-adjusted earnings.
In December, the billionaire businessman told the Financial Times that some analysts “have not understood [his businesses] in real terms”.
“Who understands are my lenders, my banks, my global investors. Every time Adani comes into the market, they love to invest. And that’s how we are continuously growing,” he said.
The Adani Group, which derives much of its revenues from mining and burning coal, has vowed to become one of the world’s largest green energy businesses by investing $70bn by 2030 in everything from green hydrogen to solar panel manufacturing.
Adani launched a hostile takeover of Indian broadcaster NDTV last year, in an attempt to build a media business.
Additional reporting by Benjamin Parkin, South Asia correspondent