The Hindenburg-Adani Saga: A Hit Job?

Opinion

Geopolitics runs firmly in the background of the attempted weakening of the Adani Group

By Jan Arden

Hindenburg Research, named after the doomed hydrogen-filled German airship, was founded in the US by Nathan Anderson in 2017 to make massive profits on short-selling a specific corporate stock by a highly mediatised attack that effectively plummets that stock value and makes the prediction come true. Such a short-sell profit-raking strategy against a US corporate giant is an extremely high-risk venture as a massive lawsuit in US courts for billions in damages would ensue and Hindenburg would have to show serious research to avail itself of a defence on grounds of public interest.

Gautam Adani lost half his wealth in a flash. Pic – CNN Business

Moreover, the rapid inevitable response of the corporate giant may halt the damage, stem the stock plunge and rally the market if the latter feels any issues raised by a professional short-seller are insufficient to assail the giant’s track record and underlying strengths. And to cap it all, the short-seller may burn its hands badly should the predicted fall fail to materialise.

By picking on the foreign-based Adani empire and one of the wealthiest Indian business tycoons, Gautam Adani, Hindenburg would have felt it was on far safer legal grounds while still able to short-sell and rake in massive profits from the stocks that would suffer from its sudden attack.

To understand the short-sell strategy, a few words might be useful for the vast majority, like me, who don’t make a hobby or a living on stock market speculations while recognising its importance and impact for large international hedge funds, corporate bankers and their investment managers.

Both the latter and the ordinary punter usually invest in shares on the basis of various regular financial tracking info (and the occasional insider information…) that bets on future accretion in the value of those shares, either in a safe and prudential strategy or with some degree of optimism about the stock market generally or new trendy stuff (e.g., IT startups, bitcoins, green energy, etc.) or the selected shares in particular.

A short-seller like Hindenburg banks on the opposite, with higher risks but possible massive returns. It essentially borrows from a broker shares it does not own promising to buy them at some future stage, say 1 to 3 months down the road, accepting the interest fees and commissions for such a loan.

In simple terms, it may contractually borrowfrom a willing broker 1m shares at a value of $100, sell them on the market at that price, then predict the stock demise and buy them backweeks later when the value has verily plunged to say $40, before the corporate prey has effectively countered the claims of the predator. In this example, a short-seller would stand to gain $ 60m within weeks of the high-profile attack and can obviously repay all interests and fees of the broker.

The January 24 Hindenburg report on the Adani Group, whatever its substantiated merits, created exactly the sort of international stir for the Group and subsidiary stocks to plunge heavily, enough for the massive, short-seller killing that an aggressive and nimble short-seller would be aiming for. The time delay before the predictable Andani Group’s rebuttal and stock markets rallying round its track record and performance would be enough.

By any standard, the Adani group response was ultra-swift and strong, issuing on Sunday January 29th a detailed 413-page rebuttal of the short-seller’s attack, calling it “…a malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts”.

But enough damage for a killing had been done.

On Feb 3rd, India’s Economic Times reported “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.” Hindenburg declined to comment to Reuters on the method it used to short-sell Adani despite SEBI (the independent Indian Stock Exchange regulator) rules, neither has it revealed anything about the size of its bets and the mega profits it may have raked in. While the full truth about the massive financial Hindenburg-Adani controversy may never be known, there are several angles to the story – each with its own uncertainties and unfolding timeline:

1.Nathan Andersen has the nefarious reputation of targeting various companies and Hindenburg has already faced castigation in the US courts, as being a defamed agency whose “researched” reports should be taken with great caution.
A similar attack on a US or Western corporate giant would have failed and left the predator with immense claims for damages, but it seems for an Asian corporate giant, allegations of unverified misdeeds, even by a suspicious predator, are more believable (the report was apparently laced with various framed and vague accusations such as linking Adani with arrests and murders of journalists!), leading to the knee-jerk market reactions. Read More… Become a Subscriber

Mauritius Times ePaper Friday 10 February 2023