The Hindenburg report, released on 24th Jan, 2023 had the intended outcome. The short seller shaved off $ 100 Billion Dollars or more of Adani Enterprise's market value. The Indian punters, an excitable lot, ensured a blood bath of Adani companies in the Indian bourses. The company's stock price crashed 28% on Feb 2 and billionaire Gautam Adani called off the Rs 20,000 Crore ($ 2.5 Billion) follow- on public offer (FPO) and said money will be returned to investors. It had the obvious spinoff on the political front as well. The opposition parties, starved of a really juicy morsel for long, jumped onto the ring with alacrity. A great fire is now raging between the ruling BJP and Opposition led by Congress. Parliament is in session, allegations - counter allegations are flying thick and fast. The common citizen is alarmed as LIC, SBI and other names, with which he may have a faint acquaintance, are being questioned. Most hope their hard earned money remains safe in this battle of heavyweight moneybags.
How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History. It was an accusation which was bound to have a telling impact. And it hit the target with an accuracy of a Stinger missile. However, many including other short sellers were left wondering how Hindenburg was going to make money. Reuters, in its report mentioned - the short seller 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.” However, 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. People familiar with trading in Indian securities opine, profits could be made in the derivative trades and via participatory notes or P-notes. The Hindenburg tight lipped approach and skepticism shown by other short selling players seem to point fingers at a different issue altogether.
Did Hindenburg intend to make money at all?
Since the amounts involved are humongous and the report has become the subject matter of discussion in the parliament and the nation as a whole, we need to examine it from beyond the simplistic angles. Some queries need to be answered. Are the actions of Hindenburg entirely in accordance with Indian Laws ? Why did the Sessions Court in Tiz Hazari, Delhi halt the defendants Google, Twitter from disseminating the Hindenburg report regarding Ebix, Inc? Why Is Hindenburg not allowed to publish reports in US on US Companies? Is Hindenburg not doing insider trading? Is Hindenburg not utilizing 'fruits of a poison tree' in its activities? Why is everyone not waiting for regulators like SEBI, RBI, IDRA, GRAI, ED, SFIO, MCA etc. to probe and submit reports before taking positions and leveling allegations? Why are Citi Group, Stanchart, Credit Suisse quick to take positions inimical to the Adanis? How is it that those, who are said to be most exposed, like LIC and SBI, not pulled out the plugs on Adani? Is it not a fact that Adani Companies are giving a tough fight to Chinese Companies in many areas?
Many economists, market watchers, corporate captains have tried to explain to frightened investors and common public that it's a mere business phase of a company and a mountain is being made of a molehill. Common citizens are advised to heed to their counsel. Skeptics may like to point out that Adanis have taken huge debts and therefore vulnerable. Just a few facts, those who question leverage must understand the business Adani's are in. The infrastructure business, traditionally calls for greater debt. Lately, there has been much talk of Capex by the Private Sector especially in the infrastructure of the nation as the government can spend only that much. Traditionally, in India, the involvement of the private sector in infrastructure building has been sluggish. From last few budgets, private capex is constantly being emphasized. But what happens when a Private investor comes forward? We start to question his intentions of raising finances for Ports, Airports, Railway Lines, Power et al which that person may wish to invest in. All are aware that the gestation period for core infrastructures is longer than say IT, Retail or even Telecom. If we don't allow core infrastructure projects to fructify we will surely fall between two stools. This needs to be well understood. Coming to the Chinese aspect; its well known that the Adani's are giving a tough fight to them internationally, not only in infrastructure (Haifa Port in Israel being the latest) but in Solar Panels and production of semi conductors, as well. Mr. Mahesh Jethmalani, MP also indicated that there is a Chinese connect to the entire episode. The 'Communist Capitalist' may well be tempted to interfere through mischievous and acquiescent organizations, if it cannot do a Jack Ma on a businessman of another nation.
It's in fact too early to jump to conclusions. Prof. Aswath Damodaran of the Stern Business School, while speaking to an Indian Media House, said that Adanis' seem to have been trying to get greater control of their companies, which is often the case with many family owned entities. They may need to relook at their strategies in future. Though markets are a reflection of an economy, they don't tell the whole story, far from it. The Adani Enterprises shares rallied 10%, Adani Ports 8%, Adani Power 5%; 9 out of 10 Adani group stocks gained, said BT Market Today. So much so for the doomsday predictions that markets in India will be irreversibly impacted by the Hindenburg report. Although there are no guarantees but at the same time to panic in such situations is a sure shot recipe for disaster. Mr. Harish Salve, eminent jurist also questioned the report. He further said - "Where India lacks is that in India we don't have the legal framework to take on an Hindenburg.
If we sue them for damages, Gautam Adani's grandchildren will be fighting the case." Readers, Corporate Espionage is an accepted way of business today. Maybe the Adani's need to engage sleuths to seek out moles and snoopers who wish to make money on their misery by not so ethical means. A shortcut to making money quickly by manipulating the market by short selling is maybe preferred by some than strenuously building up solid edifices which generate value on long term basis. Needless to state, Corporate Governance is for other companies and nations, not BBC, Huawei or China. The Hindenburg episode has at least one moral; building moats is as important as building businesses.
At this juncture, one is tempted to recall what Richard Branson once said about balloons - “If you’re embarking around the world in a hot-air balloon, don’t forget the toilet paper.”
By Sidhartha Mukherjee, Opinion expressed are personal.
