Indian investors are interested in the history and qualifications of the short-selling research firm Hindenburg, which has its headquarters in New York and whose pessimistic analysis of the Adani group has sparked a firestorm in Indian financial markets and caused a $50 billion sell-off in stocks. Domestic onlookers may mock or laud Hindenburg, depending on their own ideologies, but when you look at the firm's work, you immediately notice how many research reports it produces.
Nathan Anderson founded Hindenburg as a stand-alone research company in December 2017, the company has released notes on 45 companies. Significantly, out of the 34 times, short sellers were successful at least 29 times (target stock down more than 50%). Companies like Hindenburg frequently share their research with a select group of investors before it is made available to the general public. This enables the investors to take short positions and profit from the release of the report.
A damning report headlined "How The World's 3rd Richest Man is Pulling The Largest Con in Corporate History" was released by Anderson's research company Hindenburg on January 25. The 10 listed Adani firms lost between 5% and 25% over two trading days (January 25 and 27). The Adani group produced a thorough denial of Hindenburg's accusations on Sunday Night, labeling them nasty and false.
Many investors come to the conclusion that the report's timing—released less than 48 hours before the group's flagship company, Adani Enterprises, was scheduled to begin its ₹20,000 crore ($2.4 billion) secondary sale of shares on Friday—leaves it up for discussion as to whether it was done to thwart what is marketed as the nation's largest follow-on-public sale of shares. After doing a lot of research, Hindenburg stated in its note, "We have taken a short position in Adani Group firms using US-traded bonds and non-Indian-traded derivative instruments."
Hindenburg first conducts research on a target company in the hopes that its stock would decline, after which it uses social media to make its findings widely known. In the first five days after Hindenburg Research tweeted about its findings on Adani, nearly a million people had access to it. Hindenburg, however, has chosen to take a short position in Adani bonds that are listed for trading in the US as well as other non-Indian-traded derivative products, in contrast to most short-sellers who opt to trade into the equity of a firm.
The Securities and Exchange Board of India, India's market regulator, appears to have denied Hindenburg and some of its investors permission to purchase and sell stocks. A further reason is that Hindenburg would have come within the jurisdiction of the market regulator, which disapproves of and forbids betting on a stock's decline beyond intra-day calls, had it really taken a short call on the stocks of the 10 listed firms owned by Adani.
This is crucial in the case of the Adani Group since, according to a CLSA note dated 26 January, 37% of the $24 billion in debt held by the five listed entities—Adani Enterprises, Adani Ports, Adani Power, Adani Green, and Adani Transmission—included US dollar bonds and rupee bonds. Corporate bonds do not allow investors to purchase a stake in a company, in contrast to purchasing shares, which enables them to do so. Bonds provide investors with a fixed income that the corporation has promised to pay as interest on the principal amount of money borrowed, whereas a stock's performance determines the wealth of shareholders.
Hindenburg has admitted that it has shorted Adani bonds, and if they are successful in lowering the Indian group's bonds and raising the yield, it may be necessary to look into alternative borrowing or debt refinancing options. To begin with, after the news was made public on Wednesday, the yields on Adani bonds have only slightly increased by four basis points. Prior to founding Hindenburg,
Anderson was the CEO of ClaritySpring Inc., a database that aimed to link big investors with small funds.
By December 2018, he was considering closing ClaritySpring and had already begun developing the technique of finding flaws in the narrative of a publicly traded firm before collaborating with any short sellers. In 2017, Eros International Plc, a division of the Indian film production company Eros that is listed on the New York Stock Exchange, filed a defamation lawsuit in New York court against a number of short sellers and ClaritySpring.
In accordance with the lawsuit, Anderson wrote three articles in July and August 2017 under the moniker Hindenburg Research and then followed them up with tweets. There is no publicly available information about the research firm's finances, personnel, or investors, despite Anderson having claimed in previous interviews that he collaborates with a group of 10 like-minded investors.
Source: Bloomberg,ET,BS
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