Why has the Adani Group shed US$90bn in value and what do short sellers have to gain?
The sprawling empire of Gautam Adani, an Indian industrialist and one of the world’s richest men, seemed unstoppable until the US investor Hindenburg Research accused his company of “pulling the largest con in corporate history”.
As soon as markets opened in Asia after the report was published, spooked investors offloaded their positions in the seven listed Adani companies. Within days, the Adani Group companies had shed more than US $90bn (£73bn) in value, representing more than one-third of the market value of its stocks.
Its billionaire chairman has also dropped off the world’s Top 10 rich list, and the company’s much-vaunted share sale has been called off.
The report raises serious allegations of stock manipulation and accounting fraud that threaten to heap further pressure on the Ahmedabad-headquartered conglomerate, curbing its global ambitions.
The Adani Group – spanning ports, power, coal and renewables – has strongly denied the report’s claims, which it described as a “malicious combination of selective misinformation and stale, baseless and discredited allegations” and accused Hindenburg of attempting to damage its reputation before a large share offering. It has equated the 24 January report to an attack on India, while noting that Hindenburg, an US-based activist short seller, is profiting from the chaos.
Who is Adani and what companies has he founded?
Adani is from a textile family in the western Indian state of Gujarat, the same industrial area as the prime minister, Narendra Modi, hails from.
With a background in commodities trading and diamond sorting, Asia’s richest man expanded his business into a US$220bn ports-to-power conglomerate that includes seven listed companies on Indian exchanges, as well as numerous private companies.
In the past three years, Adani’s net worth increased by about US$100bn on the back of huge share price increases in the listed companies.
The Indian conglomerate remains heavily tied to coal, which includes its Carmichael mine and rail project in Queensland, Australia, that faced fierce opposition for its expansion of the use of thermal coal and environmental impact on the Great Barrier Reef.
Part of Adani’s appeal in India is that its assets, which include fossil fuels but also solar and wind power plants, are seen as an answer to the growing energy needs of the fast-expanding economy.
What is Hindenburg Research and what did it do to Adani?
Founded by the investor Nate Anderson in 2017 and named after the 1937 airship disaster, Hindenburg is a US financial firm that analyses listed companies, with a focus on finding tradable entities that it believes have too much debt and are poorly, or fraudulently, run.
Hindenburg then seeks to profit from their crashing share prices.
On 24 January, it released a report targeting Adani companies that it said was the result of a long investigation. The value of the seven listed Adani companies have been heavily sold off on Indian stock exchanges in the aftermath.
What do short sellers do?
Conventional shorting involves an investor betting that a particular asset will fall in value, traditionally done in markets that allow investors to “borrow” a security, sell it, and then buy it back hopefully at a lower price.
There are other more complex financial instruments that can be used