Gautam Adani’s business loses $50 billion in market value after short seller report By Diksha Madhok, CNN Published 6:15 AM EST, Fri January 27, 2023 The logo of the Adani Group is seen on the facade of one of its buildings on the outskirts of Ahmedabad, India, April 13, 2021. Amit Dave/Reuters New DelhiCNN — The value of Gautam Adani’s business empire has crashed by more than $50 billion this week since Hindenburg Research, a US firm that makes money from short selling, published a blistering report accusing it of fraud. India’s Adani Group has denounced Hindenburg’s allegations as “baseless” and “malicious,” and it is considering legal action. But the sharp sell-off in shares, which began Wednesday, accelerated Friday after US hedge fund billionaire Bill Ackman said he found the short seller’s report credible. Hindenburg Research published an investigation on Adani’s conglomeratelate on Tuesday, accusing it of “brazen stock manipulation and accounting fraud scheme over the course of decades.” It said it had taken a short position in Adani Group companies, meaning it would benefit from a drop in their value. Shares of those companies — some of which had surged over 500% in the last few years —plunged when India’s stock market opened Wednesday. The rout resumed Friday when trading resumed following a market holiday on Thursday. Shares of Adani Transmission, Adani Total Gas and Adani Green Energy — three of the group’s seven listed companies — were down 20% each on Friday, while shares of Adani Enterprises, the conglomerate’s flagship company, fell 18%. Friday’s losses wiped out almost $39 billion in market value. According to the Bloomberg Billionaires Index, Adani is still Asia’s richest man with a personal fortune worth $113 billion, $30 billion more than fellow Indian entrepreneur Mukesh Ambani. Friday’s losses will reduce that gap. Hindenburg said Thursday that it stood fully by its report and believed any legal action would be “meritless.” “If Adani is serious, it should also file suit in the US where we operate. We have a long list of documents we would demand in a legal discovery process,” the short seller said in a post on Twitter. Hindenburg isn’t the first research firm to express concern about the finances of Adani’s sprawling empire, which has borrowed $30 billion to become established in industries ranging from logistics to mining, and is aggressively growing in diverse sectors such as media, data centers, airports and cement. Gautam Adani was a college dropout. Now he may be too big to fail Ackman weighed into the debate on Twitter Thursday, saying he found the Hindenburg investigation “highly credible and extremely well researched.”
Adani should not blame the short sellers. He can blame the traders who used the ruler to draw the bullish trend line on the chart. The bullish trend line has been broken.
Editor’s Note: A version of this story appeared in CNN Business’ Nightcap newsletter. To get it in your inbox, sign up for free, here. New YorkCNN — Asia’s richest man is in the crosshairs of a research firm whose very name evokes panic. Hindenburg Research — named after the 1937 airship disaster — is a relatively young, small New York financial researcher known for taking bold bets against high-flying corporations that it believes are overvalued, fraudulent, or both. Last week, Hindenburg stunned investors when it released a report based on what it said was a two-year investigation into the Adani Group, one of India’s largest multinational conglomerates. The report and the selloff it sparked — erasing some $70 billion in market value across Adani Group companies — is renewing concerns about the group’s corporate governance, as well as stoking debate about the often-chaotic role short-sellers like Hindenburg play in financial markets. Who is Adani, and what is he accused of? Gautam Adani is a 60-year-old tycoon who founded the Adani Group over 30 years ago, building it into India’s largest port operator, with businesses spanning infrastructure and energy production. He became India’s richest man a year ago, and briefly surpassed Jeff Bezos to become the world’s second-wealthiest. The Hindenburg report, which the Adani Group dismissed as baseless, accuses the conglomerate and Adani himself of pulling off “the largest con in corporate history.” Hindenburg accused the company of “brazen stock manipulation” and accounting fraud that’s taken place over decades. Hindenburg said Adani Group shares are massively overvalued, and it has taken a short position (more on that in a minute) on them, meaning Hindenburg wins when Adani shares fall. The Adani Group shot back, calling the Hindenburg report “nothing but a lie.” In a more than 400-page rebuttal, the Adani Group said Hindenburg’s shorting of overseas-traded bonds and derivatives amounted to securities fraud, and that the report was an attack on India. Adani slams US short seller 'attack on India' as stock rout hits $70 billion In a rebuttal of that rebuttal, Hindenburg said “fraud cannot be obfuscated by nationalism,” and that the Adani Group had ignored “every key allegation we raised.” Adani’s defenses and denials of wrongdoing haven’t been enough to stem the bleeding. Since the release of Hindenburg’s report last week, the group has lost more than $70 billion of its stock market value, my colleague Diksha Madhok reports. Adani’s own personal net worth has also plummeted by some $30 billion, according to the Bloomberg Billionaires Index, though he remains the among the wealthiest people on the planet, with $92 billion to his name. What is short-selling? In its most basic form, short-selling is an investing tactic premised on a stock (or other security) losing value. To put it in non-financial terms: Let’s say there’s a football game on Friday night, and your friend has a ticket. But you suspect the price of tickets may fall due to lack of demand on game day. So you borrow the ticket from your friend, for a small fee, and promise to have it back to them in time for kickoff. Right away, you sell the ticket you borrowed for 50 bucks, betting that by game day the cost of a ticket will be less than $50. And sure enough, bad weather keeps people at home and the stadium starts slashing prices. You buy a ticket for $30, give it to your friend, and pocket the $20 difference (minus whatever fee you paid your friend for the privilege of borrowing.) In practice, firms that specialize in short-selling are often among the most reviled. If the world of Wall Street is a craps table, where one player’s winnings boost everyone else’s, short-sellers are the guys betting against the table. Short-sellers argue that their work plays an important watchdog role, exposing fraud and keeping assets from becoming over-inflated. “Critical, adversarial research is needed because Wall Street is a finely tuned machine, built to sell securities to the public, regardless of quality,” Hindenburg wrote in a 2021 report. “The corporate world is rife with fraud, and investors have little protection.” And to their credit, short sellers were key to exposing major market frauds like Enron in 2001 and the systemic mortgage fraud that nearly cratered the global economy in 2008. Of course, there’s nothing to stop bad actors in the short-selling world from making exaggerated or bogus claims about a company to try to turn a quick profit. What is Hindenburg Research? Hindenburg is a short-seller that specializes in forensic financial research, founded in 2017 by Nathan Anderson. And yes, it is named after the Hindenburg: “We view the Hindenburg as the epitome of a totally man-made, totally avoidable disaster,” its website states. “We look for similar man-made disasters floating around in the market and aim to shed light on them before they lure in more unsuspecting victims.” It’s sort of like a bunch of investigative journalists, except without all the ethical baggage. (Journalists cannot retain a financial interest in their subjects; short-sellers like Hindenburg almost always do.) Hindenburg won its reputation as a bloodhound for financial malfeasance in 2020, when it accused electric vehicle maker Nikola of lying to investors about its truck’s capabilities. Nikola’s founder was eventually convicted of fraud. What happens next? Adani Group’s top lawyer said the company was considering legal action against Hindenburg. In response, Hindenburg tweeted that it would welcome such action and that it stands by its report. Meanwhile, the negative press comes at a tricky time for Adani, who is aiming to raise $2.5 billion by issuing new shares in Adani Enterprises this month. The offer will close on Tuesday.
Up it went at a 60-degree gradient. Down it goes at an 89.9-degree gradient. And it has the potential to go down even further.