Targeting Adani: Questions raised on Hindenburg Research’s transparency, motive

NEW DELHI: A recent 100-plus page “investigative’ report by the New York-based Hindenburg Research LLC, commonly known as Hindenburg Research, an investment research firm founded by Nathan Anderson, a former Wall Street broker, led to the stock value of Adani Group companies tanking by a massive Rs 4.4 lakh crore till Friday.
The said report has accused the Ahmedabad-based Adani Group of “brazen” market manipulation and accounting fraud. In its response, the business conglomerate termed the report as “a malicious combination of selective misinformation and stale, baseless and discredited allegations”. The report was released hours before the Rs 20,000 crore Follow on Public Offer (FPO) of Adani Enterprises was set to open for subscription.
The timing of the report, as per the Adani Group statement, “clearly betrays a brazen, mala fide intention to undermine and damage the share sale plan”. Hindenburg Research, a fewer than 10-member firm, was founded in 2017 and claims of putting out detailed reports on corporates and their alleged wrongdoing. While doing this “public service”, as per their own admission, the firm and its investors make financial bets on the stocks of the companies that they are going to target in their research and when the stock prices of these companies fall, as happened in the case of Adani Group, Hindenburg, Anderson and its institutional backers make money through what is called a “short” trade.
In simple words, they publish critical reports on companies, push the said report widely on social media and in news media to negatively impact the stock’s price even as the same author and their institutional backers borrow shares of the target company from a brokerage firm and then sell them, expecting the stock price to fall on account of their negative research.
If the stock does fall, as happened in the case of Adani, the short seller buys the now-cheaper shares back, returns them to the broker and pockets the difference. The profit earned by Anderson and the investors supporting him and his company, experts say, is likely to be “huge” considering the loss that was suffered by the Adani group on Wednesday. There are no details available on the Hindenburg company’s website on who the investors are that are backing this New York-based firm that employs former journalists and financial experts in its work force.
The Sunday Guardian reached out to Anderson and the firm seeking response to the following questions:
1. Can you share the details of those who have invested in Hindenburg Research? 2. As per your report, you started the investigation on Adani Group two years ago. Can you share what was the “trigger” for initiating this probe? 3. Critics of your findings are stating that the report was released on behalf of Adani’s competitors. How would you respond to these allegations? 4. Did the firm and its backers short trade in Adani Group’s shares? 5. Are you comfortable in disclosing the profit that was earned due to this short trading?
No response was received from the firm till the time the story went to press.
Anderson, son of a college professor and a nurse, grew up in rural Connecticut and earned a business degree from the University of Connecticut. He later moved on to auditing deals for investment firms and individuals. According to people aware of the matter, there are at least eight investors that are funding Hindenburg Research, the details of which the firm or Anderson has never revealed, leading to criticism from its detractors that it was a firm that acted as a “front” to wage corporate wars.
The recent report by Hindenburg on Adani, apart from bringing out multiple alleged shortcomings, has focused extensively on alleged “secretive” investors behind the Adani Group. However, Hindenburg is facing the same “deficiency”—of not revealing the details of those who are financing the firm and profiting from its activities. “The report basically is a compendium of the legal issues that Adani Group has faced since it came into existence. The same report can be made for any US, UK or Indian company that is as huge as the Adani Group. The report has tried to portray that the Adani Group is above all the market regulators in India. More importantly, the said report is likely to be used by foreign agencies and competitors to stop Adani from expanding in other countries which it was planning to in a big way in the coming months,” a financial expert with a top legal firm said.
The timing of the said report, which is mostly based on publicly available documents, that has posed 88 questions to the Adani Group, too, has raised questions as the Adani Group has been investing in strategic sectors and areas that are in direct confrontation with some of India’s regional competitors, specifically China.
Last year, the Adani Group acquired the Haifa port in Israel, along with the local Gadot group. Among others, the Chinese establishment was reportedly backing one of the three groups that remained standing in the last round, apart from Adani, to acquire Haifa port. The Chinese interest in taking control of the Haifa port and develop it as one of its jewels of the “Belt and Road Initiative” was part of a well thought-out strategy as a Chinese entity, the Shanghai International Port Group (SIPG), had earlier won a 25-year-old contract to operate Haifa’s new terminal till 2056.
The Adani Group’s offer to take control of the Haifa port was 4.1 billion shekels ($1.18 billion), 55% more than the second highest bid, according to Israeli media. In January 2020, when the Israeli government had announced its decision to privatise the Haifa port, it had stated that the winning bidder must agree to make a minimum investment of $290 million, including at least $115 million for infrastructure investments.
In June 2020, a leading newspaper in China, seen as the mouthpiece of the Chinese Communist Party (CCP), had written about how the Shanghai Zhenhua Port Machinery Company (ZPMC) was the main supplier of heavy logistical equipment to the Haifa’s new 18,000-container terminal, which China had won in 2015. It has so far invested $3 billion in this project, for the strategic benefits that it is expected to bring to China in the coming years.
The newspaper wrote, “Haifa Port, a symbolic project along the Belt and Road Initiative, will be the largest container terminal in Israel. Haifa port is the home base of the Israeli navy, including a new facility for the new Dolphin class submarines that Israel purchased from Germany.”
The strategic value of Haifa port, situated 90 km from capital Israel, can be made out from the fact that it shares close coordinates with the Haifa naval base, which is the primary base of the Israel Defence Force. The Chinese “intrusion” into Haifa port through its investment in developing the new terminal had become a matter of big concern for the United States, as there were apprehensions that it would be used to carry out covert operations against its naval forces, specifically the Sixth Fleet, which uses the Haifa naval base very frequently. “Indian companies, due to their expertise, are being asked by many countries to invest in their region. There have been instances in the past where such companies have been targeted by strategic competitors. Whether this was the objective in the present case is something that will come out soon,” said an official source who is monitoring the developments.