The Adani Group and Hindenburg Research are intensifying their heated conflict. The corporation adopted a dramatic tone and referred to the New York-based research organisation as the “Madoffs of Manhattan” in response to Hindenburg’s assertion that Indian entrepreneur Gautam Adani has been responsible for the “biggest fraud in corporate history.” Adani claimed that the study by the activist short-seller was a “calculated attack on India” and its “growth story and ambition.”
Never mind that Harry Markopolos, the analyst who unearthed Bernie Madoff’s Ponzi scheme that defrauded investors of up to $65 billion, had previously collaborated with Nathan Anderson, the inventor of Hindenburg. That, if anything, places Anderson in the Madoff-hating camp.Even though Hindenburg quickly responded to Adani’s statement by claiming that it had not addressed “62 of our 88 issues,” it is still worthwhile to consider what the short seller should prioritise going forward in order to win over investors’ attention and money.
Other companies, like China’s HNA Group and China Evergrande Group, had weathered years of attacks from prominent short sellers and only fell victim to failure when the political tide shifted against them.
Stock manipulation is one of the main charges made by the research firm. With the use of offshore shell entities, Adani executives reportedly already possess more than 75% of four publicly traded subsidiaries, which would necessitate delisting under Indian securities laws.
But investors who are choosing what to do with their Adani holdings are not persuaded by that claim alone. Foreign investors had long complained about Hong Kong-listed Evergrande’s small free float and consolidated ownership, which made it difficult for them to short the developer’s shares. However, their complaints were mostly unanswered. Evergrande didn’t start to experience financial difficulties until Beijing’s regulators started to enforce their rules, which caused local banks to stop financing to the developer.
Thus, everything will rely on whether Hindenburg has sufficient influence on the global level to block at least one of Adani’s major borrowing avenues. Capital is important for industrial businesses. Even successful businesses can fail if they can’t refinance.The current ratios of five of the seven listed Adani companies show that they don’t have adequate liquid assets to satisfy their short-term commitments. This makes Adani’s capacity to refinance debt even more crucial.
Given that nearly 30% of Adani’s debt is in foreign currencies, Hindenburg may have an especially loud voice on this issue. According to statistics from Bloomberg, the company has bonds worth more than $10 billion outstanding, and among its investors are renowned global asset managers including Lord Abbett & Co., BlackRock Inc., and Goldman Sachs Group.
A few dollar bills, including debt from a subsidiary of Adani Electricity Mumbai Ltd. with an investment-grade rating, have already dropped to distressed levels, signalling growing market scepticism over Adani’s creditworthiness.The publication of Hindenburg’s research is reviving a bond sell-off that started in September after CreditSights, a division of Fitch Group, published a study expressing concerns about the group’s leverage.
Bond traders internationally may be uneasy because of their recent experience of Evergrande’s stunning fall. Adani Ports & Special Economic Zone Ltd., the largest issuer of dollars in the group, is rated at BBB-, the lowest investment grade category. What if credit rating companies assign the company a junk rating solely on the basis of their conviction that market selloffs can eliminate financing possibilities, as they have with Chinese real estate developers? Even just this anxiety might deter foreign bond purchasers. The Adani short is still mostly an equity story at this point.
