Investment Strategies
India's Adani Hits Back At Short-Seller's Attack

The story sheds light on the ways that short-sellers seek to profit by targeting organisations which they claim are weak, mismanaged or not sufficiently profitable. The India-based conglomerate has responded, saying that it is thinking of demanding remedies and punitive action.
India’s Adani
Group yesterday said it is mulling "remedial and punitive
action" under US and Indian laws against short-seller Hindenburg
Research, which in a report accused it of making improper use
of tax havens, and other failings.
As reported by Reuters and other news services
yesterday, shares in seven listed group companies of the
conglomerate lost $10.73 billion in market capitalisation in
India on Wednesday after Hindenburg released the
report.
“After extensive research, we have taken a short position in
Adani Group Companies through US-traded bonds and
non-Indian-traded derivative instruments,” Hindenberg said on its
website.
Jatin Jalundhwala, group head, legal at Adani, said in a
statement yesterday: “The maliciously mischievous, un-researched
report published by Hindenburg Research on 24 January 2023 has
adversely affected the Adani Group, our shareholders and
investors. The volatility in Indian stock markets created by the
report is of great concern and has led to unwanted anguish for
Indian citizens.”
“Clearly, the report and its unsubstantiated contents were
designed to have a deleterious effect on the share values of
Adani Group companies as Hindenburg Research, by their own
admission, is positioned to benefit from a slide in Adani shares.
We are deeply disturbed by this intentional and reckless attempt
by a foreign entity to mislead the investor community and the
general public, undermine the goodwill and reputation of the
Adani Group and its leaders, and sabotage the FPO (Follow-on
Public Offering) from Adani Enterprises. We are evaluating the
relevant provisions under US and Indian laws for remedial and
punitive action against Hindenburg Research.”
Founded by Nathan Anderson in 2017, Hindenburg says it looks for
"man-made disasters" in companies, such as accounting
irregularities and mismanagement.
The report from the group asked how the Adani Group has used
offshore entities in offshore tax havens such as Mauritius and
the Caribbean Islands. It also said that key listed Adani
companies had "substantial debt" which has put the entire group
on a "precarious financial footing."
The report came out ahead of today’s (Friday) scheduled $2.5
billion secondary share sale by Adani.
The saga throws light on how some activist investors can use such
tactics against firms which they claim aren’t making enough
profits and returns for shareholders, or are hoarding value that
needs to be unlocked. In this specific case, it is an example of
using the short-selling strategy to make money by sharp
criticisms of how a firm or conglomerate is run.
The claims
In its statement, Hindenberg said: “Even if you ignore the
findings of our investigation and take the financials of Adani
Group at face value, its seven key listed companies have 85
per cent downside purely on a fundamental basis owing to sky-high
valuations.
“Key listed Adani companies have also taken on substantial debt,
including pledging shares of their inflated stock for loans,
putting the entire group on precarious financial footing. Five of
seven key listed companies have reported ‘current ratios’ below
one, indicating near-term liquidity pressure,” it continued. “The
group’s very top ranks and eight [out] of 22 key leaders are
Adani family members, a dynamic that places control of the
group’s financials and key decisions in the hands of a few. A
former executive described the Adani Group as `a family
business’.”
The firm said that the Adani Group has previously been the focus
of four “major government fraud investigations which have alleged
money laundering, theft of taxpayer funds and corruption,
totalling an estimated $17 billion.”
“Adani family members allegedly cooperated to create offshore
shell entities in tax-haven jurisdictions like Mauritius, the
UAE, and Caribbean Islands, generating forged import/export
documentation in an apparent effort to generate fake or
illegitimate turnover and to siphon money from the listed
companies,” it said.
“We believe the Adani Group has been able to operate a large,
flagrant fraud in broad daylight in large part because investors,
journalists, citizens and even politicians have been afraid to
speak out for fear of reprisal,” it said.