Adani, Gautam adani net worth, Adani group, Adani enterprises limited, Hindenburg research, Hindenburg report| Why Adani shares are falling??

 Adani-Hindenburg Saga that stormed the Indian equity markets

To write this article, I have browsed through the pages of the Hindenburg research report against Adani as well as Adani’s response. You can too read the reports by clicking at the link here: report and report. I am sure that you must have definitely heard about Adani if you are an Indian citizen but not about Nathan Anderson, the founder of the Hindenburg research firm. To learn what this article contains, you can see the Table of Contents given below.

Table of Contents

• What is Hindenburg company and what does it do?? How Hindenburg makes money??
• Past History of Hindenburg 
• What is Short Selling??
• What Hindenburg thinks about the Adani group as published in its report??
• Adani group’s response to the report
• Gautam Adani’s net worth as of 07th March 2023 (while writing this article)
• Conclusion:

What is Hindenburg company and what does it do?? How Hindenburg makes money??

Nathan Anderson created Hindenburg Research LLC in 2017, with an emphasis on activist short-selling that is headquartered in New York City. It produces public reports via its website that accuse corporations of fraud and misbehaviour. In six months or more, Hindenburg Research conducts an in-depth analysis of its target company, reviewing internal and public documents. The report prepared is shared with Hindenburg's partners or stakeholders, who decide to short the target business alongside Hindenburg. Hindenburg makes money if the target company's stock price drops.

Past History of Hindenburg 

Hindenburg has published papers on several companies, including DraftKings, Ormat Technologies, Mullen Technologies, and SOS, a Chinese blockchain and crypto mining startup in the past. Hindenburg Research has made many prominent accusations, including that Nikola Company, a manufacturer of electric vehicles, misled investors about its technology and potential. According to a Bloomberg report, the average stock value of the 30 firms Hindenburg targeted dropped by 15% the day after the report was released. And their stocks dropped by 26% on average during the next six months. Thus, Hindenburg Research LLC has a very decent record.

The chart given below also explains this thing very well.

Source: Twitter @EOFmarketexpert

What is Short Selling??

Short selling is a trading method where an investor borrows shares from another party and then sells them in anticipation of a decline in the stock price. The investor then purchases the same number of shares at a lower price, sells them back to the original owner, and keeps the difference as profit. Since it may distort prices and markets for particular securities, short selling is regarded as a problematic practice. Without a doubt, short selling is a dangerous business that requires caution since, should the stock price rise further, the potential losses may be limitless.

What Hindenburg thinks about the Adani group as published in its report??

The Indian conglomerate Adani Group has been charged in the Hindenburg report, which was published on 24th January 2023 of participating in deceptive accounting procedures and stock manipulation over a long period of time. According to the investigation report, the group employed shell companies to fraudulently boost the value of its shares, which led to a stock price that did not accurately reflect its financial net worth. Thus, the company is being overvalued. The study also asserts that the Adani Group has incurred significant debt as a result of listed firms using shares of their "inflated stock" as collateral for loans. This has put the group in a dangerous financial condition, where any drop in the stock price might result in debt defaults and the collapse of the organization's financial position. The charges also cast doubt on the efficacy of regulatory control in India and the likelihood that other businesses may engage in similar behaviour. In the same report, the Adani Group was charged with participating in import-export fraud schemes involving diamonds, iron ore, coal, and power equipment, which served as the early pillars of its corporate empire. The group was accused of engaging in at least $17 billion worth of corruption, money laundering, theft of taxpayer money, and syphoning from publicly traded corporations, according to the report. In its report, the firm has raised 88 questions regarding the Adani group and all the issues it has mentioned in the report.

The Hindenburg firm speculates that the above process was used to move money from offshore-based firms and Mauritius entities into companies listed under the Adani Group thereby increasing the value of these shares.

From these 3 images (below), we can understand that such Mauritius-based shell companies are used to conceal the identity of the person who is investing. As a result, Hindenburg suspects (in fact believes) that the promoter based shareholding very well exceeds SEBI’s maximum limit of 75%. If this were true then there is a probability that the company may get delisted from the exchange.

How they took a short position in the Adani group explained??

The firm might have used both U.S.-traded bonds and non-Indian-traded derivative instruments to establish a short position in the Adani Group companies. A U.S.-traded bond is a debt obligation issued by a company in the U.S. market. Here, the entity might have purchased Adani Group Companies' bonds with the expectation that the company's stock prices would decline, resulting in a profit for the bondholder. Non-Indian-traded derivative instruments include options, futures, and swaps. These instruments allow the trader to speculate on the future value of a security without owning the underlying asset. 

Adani group’s response to the report

Adani released a 413-page report in response to the one from Hindenburg. They assert that selective and deceptive presentations in the public domain were used to create a false narrative. They further claim that the report threatens Indian institutions. In a statement following the release of the Hindenburg Research, the Adani Group refuted claims that "blatant lying and coordinated efforts to build a fake price sensitive narrative" had taken place. The statement said that the Adani Group complies with all rules and laws and is a good corporate citizen. The Securities and Exchange Board of India (SEBI) opened an investigation into the Adani Group's compliance with securities rules and regulations in response to the revelation. Moreover, The Adani Group sued the creators of the Hindenburg Research study for defamation in the Bombay High Court.

Images taken from Adani’s response papers. He dismisses these questions off completely.

Gautam Adani’s net worth as of 07th March 2023 (while writing this article)

His net worth is $49,8 Billion at this time as per Bloomberg. However please note that net worth keeps on changing continuously with time due to fluctuations in the prices of the shares of his company. At one point in time, Mr. Adani was the 3rd richest person on the planet. Currently, he is the 24th richest person.

From the given chart, you can easily find out how much has Mr. Adani’s wealth dropped after the report has come out. It has slightly improved over the past few days as you can see from the newspaper report. Adani received money Rs. 15,446 Cr. from GQG investment firm by selling its shares which it shall use to repay its debt. As a result, the investor’s sentiments improved and there was a rally in the share prices of all his companies.

Source: Economic Times 

Conclusion:

If the details in Hindenburg's report are true, Hindenburg will profit while Adani will suffer. Adani, however, stands to win if this information is incorrect and Hindenburg is the only one who loses if Adani is correct. It is important for us to keep a record of all the major happenings and decisions by important authorities in this case. And let us wait and watch to see the share prices of all the Adani group listed companies after 1 year. By that time, I am sure that thorough investigations would be done on this matter. As of now, we can’t side with any of the two companies.

I hope you had a great time reading this article and it opened your mind. The reports prepared by both companies are really very very long and it would take much more area to cover them. The article you read here is a brief explanation of the major allegations and points in the reports. There are many more allegations. Hence, I would highly recommend you all to read the reports and other responses as also the statements of SEBI and other important agencies. I tried to give you an unbiased view of the situation in this article without favouring any particular company. It has taken me 11 hours to research and write this article covering all the points. I eagerly hope that you would appreciate my efforts. I would love to hear your opinions on the subject. If there is a further development, in this case in the future, I shall write another blogpost covering those points.

Signing off