Adani vs Hindenburg Research PDF

ADANI vs HINDENBURG RESEARCH An 18-month battle between Hindenburg Research and Adani Group has taken a fresh turn with the US-based short-seller alleging over the weekend that the chief of the country's market regulator has a conflict of interest in the matter. The Securities and E...

ADANI vs HINDENBURG RESEARCH An 18-month battle between Hindenburg Research and Adani Group has taken a fresh turn with the US-based short-seller alleging over the weekend that the chief of the country's market regulator has a conflict of interest in the matter. The Securities and Exchange Board of India (SEBI) has been investigating the group after Hindenburg Research's report in January last year set off an over $150 billion selloff in the conglomerate's stocks despite the company's denials of wrongdoing. The stocks have since recovered partially. WHO ARE ADANI AND HINDENBURG? Adani Group is an Indian multinational conglomerate, headquartered in Ahmedabad Founded by Gautam Adani in 1988 as a commodity trading business, the Group's businesses include sea and airport management, electricity generation and transmission, mining , natural gas , food ,weapons , and infrastructure. It is particularly active in metal commodity exchange. More than 60% of its revenue is derived from coal-related businesses. Hindenburg Research was founded in 2017 by Nathan Anderson. It is a forensic financial research firm which analyses equity, credit and derivatives. It has a track-record of finding corporate wrongdoings and placing bets against the companies. WHAT IS HE CHARGED WITH? The indictment alleges Adani and his co-defendants agreed to pay more than $250 million in bribes to Indian officials to obtain solar contracts worth an estimated $2 billion over 20 years. WHAT HAPPENED AT ADANI AFTER HINDENBURG REPORT? Hindenburg's report sparked a $150 billion meltdown in shares of Adani's publicly listed companies last year. Although the shares are still roughly $35 billion down from levels before the Hindenburg report, they have staged a smart recovery. In July, Adani Energy Solutions became the first group company to return to the equity capital market, raising $1 billion. The group's flagship Adani Enterprises is also considering raising funds, Reuters reported earlier this month. WHAT IS HINDENBURG's LATEST ALLEGATION? In a report published on Saturday, Hindenburg alleged that Madhabi Puri Buch, the chairperson of SEBI, and her husband previously held investments in offshore funds also used by the Adani Group. Adani Group's 10 listed firms lost a combined $11 billion in market capitalization on Monday compared to Friday's close. Updating on the status of the investigation into the Adani Group, the regulator said that it had concluded its probe into 23 out of 24 matters. Six Adani Group companies have disclosed to stock exchanges that they have received show cause notices from the regulator. A show cause notice signals an intention by to take disciplinary action if satisfactory explanations are not provided. A show cause notice has also been issued to Hindenburg for violating Indian rules, which was made public by the short-seller in July. CAN ADANI DISPUTE THE CHARGES IN COURT? Yes, but until he appears in US court, Adani's lawyers could only challenge the indictment on procedural grounds, for example by claiming US prosecutors do not have the authority to charge him. After Adani appears before a US judge, his lawyers could attack the substance of the indictment by arguing the charges are legally deficient or unsupported by the facts. If convicted, Adani could face decades in prison as well as monetary penalties, though any sentence would ultimately be up to the judge overseeing the case. Adani faces up to five years in prison for foreign bribery and up to 20 for securities fraud, wire fraud, obstruction of justice and conspiracy charges. A jury of 12 would need to unanimously vote to convict Adani, and he could appeal a verdict against him. On January 25, 2023, Hindenburg Research released a report titled - ‘Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History’, which pulled back the curtains on alleged financial fraud and stock manipulation by the conglomerate. The report came a few days before Adani Enterprises company was supposed to make a Rs. 20,000 crore follow-on public offer (FPO). The Hindenburg report had also included allegations that SEBI had launched investigations into transactions by the Adani Group, which had gone nowhere after one and a half years, due to political pressure. The Adani group responded to the claims, stating they were “baseless” allegations meant to bring down their share price. On February 24, it was reported that shares of Adani Enterprises fell by 59 per cent, in response to the report being released. The report led to major losses for the company. In February 2023, the Supreme Court heard a PIL asking for a committee to be set up to investigate these claims. The Supreme Court asked SEBI on March 2, 2023, to probe the allegations made in the report and determine whether stock price manipulation and other financial irregularities had taken place. The Supreme Court also set up a panel for the protection of Indian investors after the Adani group lost more than 100 million dollars off of their market valuation. On May 17, 2023, the court extended the time for SEBI to produce the results of their investigation by August 14. The Supreme Court on November 24, 2023, reserved its verdict after hearing a batch of pleas on the Hindenburg allegations against Adani. On January 3, 2024, the Supreme Court dismissed a plea asking for an independent probe by the CBI into the allegations against the Adani group and reaffirmed that it was the sole jurisdiction of the SEBI to look into matters of market regulation and stock price manipulation. In the same hearing, the Supreme Court also asked SEBI to complete its probe in 3 months. On January 3, 2024, Gautam Adani posted on X saying, “The Hon'ble Supreme Court's judgement shows that: Truth has prevailed. Satyameva Jayate. I am grateful to those who stood by us. Our humble contribution to India's growth story will continue. Jai Hind.” In June 2024, SEBI said that Hindenburg Research had shared its findings on the Adani group with a New York-based hedge fund manager and allowed him to trade with this information. Hindenburg Research denied SEBI's claims and said that this was an attempt to silence them for exposing corruption against those with political pull in India.  On August 10, 2024, Hindenburg Research posted on X saying, “Something big soon India”. The same day, they released a report that claimed that the SEBI chief Madhubi Buch and her husband Dhaval Buch had investments since 2015 in offshore firms owned by Vinod Ambani, Gautam Ambani's brother. The report also alleged that these offshore firms were being used for stock price manipulation and that the SEBI chief's involvement showed a lack of transparency in the market regulator when it came to investigating the Adani group. On August 11, 2024, SEBI chief Madhubi Buch and her husband released a joint statement, calling the report baseless and saying that their financial records were an open book. The Adani Group also released an official statement on August 11, 2024, stating "We completely reject these allegations against the Adani Group which are a recycling of discredited claims that have been thoroughly investigated, proven to be baseless and already dismissed by the Hon'ble Supreme Court in January 2024." The Adani case: What happens next America's Department of Justice and the Securities and Exchange Commission have indicted Gautam Adani, his nephew Sagar Adani, and six others, alleging their involvement in paying $250 million in bribes to Indian officials and concealing the scheme from US investors. The alle gations have been denied, citing a lack of evidence that the bribes were paid. This comes within two years of allegations by Hindenburg, a New York- based short-seller. In January 2023, Hindenburg accused the Adani Group of stock manipulation and accounting fraud, claiming the group inflated its market value by using offshore funds. The Securities and Exchange Board of India (Sebi) investigated the group's transactions but has not found or reported any evidence of wrong doing. However, Sebi turned the tables on Hindenburg, telling them that the short-seller itself was being investigated for trading on non-pub- THE OCCASIONAL information from its own report. ASIDE AMIT TANDON In March 2023, the Supreme Court set up a committee under Justice A M Sapre to investigate potential regulatory failures after investors incurred significant losses due to market volatility following these allegations. While the committee did not give a clean chit to Adani on many aspects of the probe, it stated that there is no evidence "as of now" against the conglomerate. Additionally, the committee found no regulatory failure on Sebi's part in its investigation into the Adani companies. If anything, Hindenburg's allegations were more serious, though the current allegations come from a more credible source and may have some consequences. But regardless of the facts and the eventual outcome the allegations strike at the heart of doing business in India. Over the past several years, India has steadily gained from the global "China plus one" push. Under this strategy, companies, while continuing to source or manufacture in China, look to other economies including India- as an additional (or secondary) location to diversify their supply chains. This China plus one strategy gained currency during the Covid-19 pandemic, as it exposed the vulnerability of relying too heavily on a single country for manufacturing and logistics. This practice has been given a leg-up as companies looked for ways to manage potential challenges in their supply chains, driven by geopolitical risks, particularly tensions between China and the US, as well as the US- China trade war and tariffs on Chinese goods. Rising labor costs in China have also prompted businesses to look for more cost-effective alternatives. Even as India presents a compelling investment opportunity, the narrative has remained that India, despite its recent progress, cannot replace China - at least not in the short term. China offers infrastructure on an unparalleled scale, its technological prowess is the envy of the world, and it boasts an integrated supplier ecosystem. It has mastered manufacturing technology and excellence, providing a streamlined business environmental of which have enabled China to become the factory of the world. International companies may not expect to find the same enviable infrastructure in India as in China. Nor do they see the same operating efficiency that China's well-trained labor force offers. Consequently, at its core, the "China plus one" is risk mitigation. For countries looking to benefit from the shift away from China, offering other assurances is crucial. India promises a younger working population and a growing middle class, which will drive consumption over the coming decades, but still needs to improve its hard infrastructure, despite the recent investments and improvements. While democracy, transparency, and the rule of law are significant assets that India boasts, businesses require much more to thrive. A productive workforce requires a well-trained labor force, which means that teachers should have been present in classrooms decades ago. Basic services like healthcare, sanitation, clean drinking water, and adequate living conditions are essential areas where improvement is needed. Additionally, there are "soft" issues that demand attention, such as maintaining a strong judiciary, independent institutions, stable policies, and a consistent tax regime. In its quest to build hard infrastructure within India, and to establish geopolitical strategic depth, the government has chosen to leverage private sector capital, knowing well the limits of its own ability to spend. As a result, large private sector groups are seen to be working in alignment with India's strategic interests-defence, renewable power, semiconduc- tors, among others. A capital-hungry India Inc will need to raise funds in global capital markets and, as a result, will be subject to global scrutiny. Given this, global governments, boardrooms and investors will now be watching how India deals with these developments. Indian regulators are largely seen as amongst the best in class globally, and nothing should be allowed to change this reality. A swift response from the Indian regulatory system will be crucial to prevent delays in India's strategic progress. It is up to the sceptics and cynics to accept the findings. Only by maintaining credibility in the rule of law, and trust in the system can the vision of "Make in India" and of a Viksit Bharat be realized.