Indian tycoon Gautam Adani, facing an attack from a New York-based short-seller, has outscored his accuser 4:1: The rebuttal given by his group on Sunday night in India runs into 413 pages. Allegations of Hindenburg Research’s stock-price manipulation and accounting fraud were contained in the 106-page report, which has now been characterized by the group as “no less than a calculated securities fraud under applicable law.” That the group measures can follow, the bigger the weighting is? Maybe it doesn’t really matter.
That’s because the fate of Adani’s vast corporate empire looks like a rounding error to one of the world’s wealthiest businessmen: in the running 200 billion Rupee The ($2.5 billion) public offer by the conglomerate flagship, large anchor investors have already been allotted shares worth about Rs 60 billion at the top end of the per share price band of Rs 3,112 to Rs 3,276. But after the Hindenburg Report, the Adani Enterprises Ltd’s stock rallied nearly 20% in the two trading days of the last week and closed at a little over Rs 2,761 on Friday. (Shares were up as much as 10% in early trading.) Mumbai on Monday.)
In other words, the firm is asking investors to buy something that is available in the market at a lower price. Institutions and high-net-worth individuals can still lift their assigned quotas – after all, a failure of the share sale could damage investor confidence in India and cause huge collateral damage to the rest of their portfolios. The only constituency that remains to be convinced is retail, Who? 70 billion rupees or less than $1 billion is needed.
Even if there are some small investors who want to make up their mind after digesting Adani’s answers to the 88 questions asked by short-sellers, chances are they will not be able to do so. At least not until Tuesday, when the public offering closes in India. They will have to take a leap of faith by ignoring falling prices. They will assume that professional investors, analysts and the media are weighing the evidence. but with Hindenburg Coming up with another note, which states that Adani has failed to specifically answer 62 of its 88 questions, there is too much information to process quickly. This would force people to judge the situation according to their prior political beliefs. Hindenburg says, “Fraud cannot be obscured by nationalism.” However, nationalism can turn the battle of perception. And that’s what matters now.
If the subscription comes through and the share sale ends, the beleaguered Indian billionaire gets breathing room to exit the shorts. majority of Indian market Participants I spoke with over the weekend believe the funding commitment will eventually be met. Adani, at last count, was personally worth about $93 billion. “How can Adani be the country’s most powerful business magnate and not raise less than a billion dollars? I hold one of those two opinions,” wondered in a phone conversation a veteran investor in the Indian markets. Not both.”
Still, it’s a tricky situation: Adani has denied reports that it is considering scaling up the public offering or reducing the issue price. Those tactics could have implications beyond the stock markets. Businessmen from Prime Minister Narendra Modi’s home state Gujarat India is a major investor in ports, airports, roads, data centres, grain storage silos and solar farms. government in new DelhiPolitical opponents attack Modi for looking to finalize infrastructure in Wednesday’s annual budget if he has to rethink his economic strategy ahead of next year’s general elections. If the share offering fails (or even falters), there could be a public uproar as the country’s state-owned banks and life insurers tangle in the debt and equity of the highly leveraged tycoon.
With so much riding on a stock sale, it’s easy to see why Hindenburg went public with its report last week. It is not clear how large the short positions are and who is behind them. The Hindenburg report only disclosed that they were foreign in “US-traded bonds and non-Indian-traded derivatives as well as other non-Indian-traded reference securities”. This is also a smart strategy. Within India, any bet on a falling stock price must be realized by borrowing shares: so-called naked short selling is not permitted. Company managements can pick and squeeze bearish bets. Hedging a position for any length of time through local derivatives can also be prohibitive. expensive.
Things can be very simple if, for example, a large family office based overseas decides to put real money behind the Hindenburg Report out of India. This can be reduced through dollar-denominated total-return swaps taken from the trading desk of a medium-sized international bank. (Big financial institutions may not want to put their Indian franchises at risk for such bespoke deals which may upset the regulator in India).
Whatever the modus operandi behind the short sales, it seems to be working so far: The group has lost $50 billion in stock-market value in two trading days. Last week’s decline in dollar bonds accelerated on Monday morning. Clearly, Bandhan traders are not entirely convinced by the Adani Group’s response. Or perhaps the fixed income market is also assessing the domestic share sale, which Adani cannot afford to let fall. All weapons are valid in what is shaping up to be an epic battle for public opinion – including information overload.
This column does not necessarily reflect the opinion of the Editorial Board or Bloomberg LP and its owners.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Prior to this, he worked for Reuters, The Straits Times and Bloomberg News.
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