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The Hindenburging Of Adani

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Hindenburg Attacks. Adani Explodes.

This story begins in India in the late 1980s, when a young Gautam Adani started a commodities trading business that would grow to become what we know today as the Adani Group. Starting off as an importer and exporter of commodities, it wasn’t long before Adani Group ventured into various other lines of business, including port management, mining, energy, sea and rail logistics, and others. By 2022, the Adani Group was pulling in roughly $23 billion USD in revenue, or so they claim. The “Group” itself is a private company owned 100% by its chairman, Gautam Adani. However, the Adani Group contains, within its structure, 7 publicly traded companies.

Now that that’s established, who exactly is this Hindenburg?

Hindenburg Research is an investment research firm focused on short strategies. It’s a pretty simple business: find a company you think is overpriced, do the research showing why, take a short position, publish your research, and…profit? Profit.

Okay, maybe it’s not *quite* so simple. The assets you’ve shorted do actually need to fall in value in order for you to make money. And if they instead gain? It gets painful, fast. So, if you’re in this business, it’s best if your research makes waves. Ideally, big, bad waves. Sometimes it works out (see, e.g., Einhorn re: LehmanBurry re: sub-prime); other times, not so much (see, e.g., Ackman re: Herbalife).

One thing we can say (more-or-less) for sure is that calling a big short is a great way to make a name for yourself. In the case of Dr. Michael J. Burry, you can even get yourself portrayed in a movie by no less than Christian Bale. Might there be a feature film portrayal in (Hindenburg founder) Nathan Anderson’s future? We’ll see. But with naming his doom-predicting investment shop after the world’s worst flaming blimp disaster, the man clearly has the whole “flair for the dramatic” thing down pat.

But okay, on to the main course: what’s all the recent hubbub about?

On 24 January 2023, Hindenburg published a scathing report on the Adani Group, detailing the results of a 2-year-long investigation conducted by the firm. Like a lot of the things I cover here on Business Thoughts, the report is wild. It’s both incredibly well-researched and chock full of allegations that, if true, defy imagination as to the bounds of public company securities fraud.

The biggest allegation is that share prices of the Adani Group’s public companies are artificially propped up by investment / share ownership by what, at first, seem like independent investment funds but are, in actuality, entities controlled by one or more Adani family members. If you’re interested in this stuff, the Hindenburg report is worth a read. Ultimately, though, what you get is a look at a big convoluted mess that seems to rhyme with schmarket schmanipulation.

But there’s actually a bit more to it than that. For one, there’s potential violations of exchange rules which would result in the delisting of the securities. Namely, if you were to include the ownership stakes by these supposedly independent investment funds as “promoters” (or, as we say in the US, “insiders”), then the securities would need to be delisted from the stock exchange on which it trades for violating SEBI’s Minimum Public Shareholding (MPS) rule. (“SEBI” being the Securities and Exchange Board of India, or India’s version of the US SEC.) So, there’s brazen frauds, extra-brazen frauds, and then there’s whatever this is. Got it.

But there’s sort of a lingering question, now that we’ve brought SEBI into the mix. Securities regulators, like cops, might see blood on the wall and go looking for a body. In the US, if something like this were to even appear to occur, you could bet a few bucks that the SEC would be out there with bloodhounds. So, what’s SEBI been up to?

From the Hindenburg report:

Monterosa Group, like many of the Mauritius shareholders, has gained a reputation in specialist circles as a front for the Adani Group.

Hindenburg spoke with a broker, who has been banned from Indian markets for manipulating Indian stocks using Mauritius-based funds, about Monterosa.

Our source stressed that Mauritius-based funds were a vehicle to “cut the trails” and conceal the identity of an investor bringing cash from overseas into the Indian market.

He alleged – based on his own track-record of dealing with regulators and being investigated by them – that SEBI is aware that conglomerates like the Adani Group are using Mauritius funds to flout laws on maximum stock ownership, and that SEBI participates in the schemes due to bribes.

Shocking, right? Not really. Because that’s the thing, not just with Hindenburg and Adani, and maybe even not just with SEBI: as more the rule than the exception, emerging markets tend to have latent and heavily entrenched corruption issues. It’s one of the biggest problems with getting FDI inflows to places like India and other emerging economies. There needs to be trust, and it’s sadly in short supply.

Regulators like SEBI provide that trust, or at least they’re supposed to. But here, where it may well be the case that the regulators are “in on it,” one has to realize that it doesn’t even matter if Hindenburg, or anyone else, can prove that SEBI was either turning a blind eye to the scheme or going so far as to actually benefit from it. The credible suspicion alone is likely sufficient to deter more than a few would-be investors who might have been considering a foray into the emerging market.






Today’s news cycle is doomed.

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Rex Chatterjee

Rex is a lawyer and risk analyst living and working in Brooklyn, New York.

For the past 20 years, Rex has been a keen observer of and commentator on a wide range of news items and current events. Rex’s interests span the breadth of business and finance, technology and innovation, and conflict and global affairs, among others.

In addition to writing and producing the Noisecutter newsletter and podcast, Rex interviews creators, founders and business leaders for his other podcast, Roadmap Zero.

Rex maintains a private law practice, Chatterjee Legal, which focuses on the needs of startups and other innovation-driven businesses. He also serves as the managing principal of Titan Grey, a risk management consulting firm.

Rex is a graduate of Cornell University and Columbia Law School.

Rex Chatterjee




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