The Adani Group, one of India’s largest conglomerates, has been accused of the “biggest con in corporate history” by US-based investment research firm Hindenburg Research. The accusations, released in a lengthy Twitter thread, claimed that Adani illegally used offshore tax havens and it raised concerns about high levels of debt. The report triggered a significant drop in the value of Adani’s businesses, wiping off over $100 billion dollars in value.
Hindenburg Research is known for publishing reports on companies’ allegedly fraudulent practices and has a reputation for being an activist investor. Adani Group has strongly denied the claims and described it as a “malicious combination of selective misinformation and stale, baseless, and discredited allegations.” They have also pointed out that Hindenburg is profiting from the chaos caused by the report. Hindenburg says that they have profited, but the claims are based on two years of research, including talks with former Adani senior executives and hard evidence.
What has happened to Adani?
The Adani Group’s total market value before the report was about $200 billion dollars, and its Chairman, Gautam Adani, was the third richest person in the world. However, the accusations have resulted in a significant drop in the Adani share price and Gautam Adani’s net worth has fallen out of the top 10 richest people in the world. While Hindenburg has welcomed any court case to bring forward all the evidence, the Adani Group continues to deny the accusations.
What is short selling?
Short selling is a technique used in investing where an individual bets on the price of an asset to go down, instead of betting on it to go up. It is done by borrowing shares in a company whose price an individual thinks will fall, selling the shares, and buying them back at a lower price when the price does fall. The difference between the selling price and the buying price is the profit made.
Activist investing is a form of investing that involves actively participating in a company’s management or influencing its policies to increase shareholder value. One famous activist investor is George Soros, who is known for “breaking” the Bank of England by short selling the currency in the early 90s. Another famous activist investor is Michael Burry, who profited from the mortgage crisis in the US between 2007 and 2010 by predicting the market collapse and shorting the market. A film called The Big Short was made about his success.
The accusations made by Hindenburg Research against the Adani Group have resulted in a significant drop in the value of Adani’s businesses and a decline in Gautam Adani’s net worth. While Hindenburg stands by their claims, the Adani Group denies the allegations and describes it as an attack on India. The case highlights the potential risks and rewards of short selling and activist investing.
If you want to learn more about the allegations against Adani and the practice of short selling, check out our recent episode of The Dive!