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Six entities under lens for suspicious trading in Adani shares: Supreme Court panel

Adani shares

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Six entities including four foreign portfolio investors (FPIs) are under the lens for suspicious trading in Adani Group shares prior to the release of the damning Hindenburg report, the Supreme Court-appointed expert committee has said.

There was a build up of short positions in the Adani scips prior to the January 24 release of the Hindenburg report, and substantial profits were booked thereafter as stocks crashed, the 178-page report said.

A “short” position is generally the sale of a stock one does not own.

Investors who sell short believe the price of the stock will decrease in value. If the price drops, they can buy the stock at the lower price and make a profit.

Also Read | Hindenburg-Adani case | Supreme Court-appointed expert panel ‘clears’ SEBI

Hindenburg’s report claimed that the Adani empire was the “biggest con in corporate history” engaged in a “brazen stock manipulation and accounting fraud scheme”.

Shares of Adani Group, which denied all allegations, likening the U.S. investment firm’s report to an attack on India, fell after the Hindenburg report was published on January 24.

As the report stirred a political row and petitions were filed for a probe into the empire helmed by billionaire Gautam Adani, the Supreme Court on March 2, constituted the expert committee to investigate if there was any failure to disclose transactions with related parties and if stock prices were manipulated.

The expert committee headed by former SC Judge A.M. Sapre found no regulatory failure during the sharp rise in prices of Adani Group companies between March 2000 and December 2022 and their dramatic meltdown after January 24.

“While there was no adverse observation with respect to Adani scips in the cash segment, suspicious trading has been observed on the part of six entities. These are four FPIs, one body corporate and one individual,” the report said.

The report did not name any of the six.

“The trading pattern here is suspicious because of the build up of short positions by these entities in the Adani scrips prior to the Hindenburg report, and substantial profits earned by them by squaring off their short positions after publication of the Hindenburg report on January 24, 2023,” the expert committee said.

A detailed investigation is being carried out in respect of the trading of the six entities.

“These being matters under investigation, and the factual findings at this stage being prima facie in nature, the Committee is not delving into the details and names of these persons, or commenting upon the quality of the prima facie evidence.

“The committee wishes to ensure that the position of the respective parties, including SEBI, is not compromised either way when investigations are pending,” the report said.

Financial crime-fighting agency Enforcement Directorate (ED) “found intelligence about potentially violative and concerted selling by specific parties just ahead of the publication of the Hindenburg report, and this may lead to credible charges of concerted destabilisation of the Indian markets, and SEBI ought to be probing such actions under securities laws,” it said citing a response from ED.

The report said an analysis in trading of apples-to-port group’s flagship firm, Adani Enterprises Ltd (AEL) shares in four patches between March 1, 2020, and December 31, 2022, a month before publication of the Hindenburg report and meltdown of Adani shares, showed the state-owned LIC was the biggest loser as it sold offs 50 lakh shares of the company when prices hovered around ₹300 and bought 4.8 crore shares when the prices ranged between ₹1,031 and ₹3,859.

After a detailed scrutiny of the movement of prices of Adani shares and their sale and purchase by different entities, the committee found no evidence of price manipulation of stocks by firms linked to the Adani Group.

Trading in AEL shares was analysed in four periods — March 1, 2020, to August 31, 2020, (Patch-1), September 1, 2020, to September 30, 2020, (Patch-2), October 1, 2020, to March 31, 2021, (Patch-3) and April 1, 2021, to December 31, 2022, (Patch-4).

Stock market regulator Securities and Exchange Board of India (SEBI) informed the committee that “while the price of AEL shares rose significantly, there was no evident pattern of manipulative contribution of price rise which could be attributed to any single entity or group of concentrated entities.”

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Amid 2008 meltdown, how short-selling survived a ban

Amid 2008 meltdown, how short-selling survived a ban

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Many referred to the Adani-Hindenburg Research affair as a ‘Lehman moment’. The allegations by a self-confessed ‘short seller’, the US-based Hindenburg Research, of the Adani Group’s “brazen stock manipulation and accounting fraud” continue to rattle the share prices of the conglomerate’s companies. It has kept the investors, regulators, the government and the judiciary, engaged all this while.

The share prices of the Adani Group companies had jumped dramatically over the last two years, but few paid any attention. Mutual funds, strangely, ignored to even partake in this wealth creation opportunity. Top fund managers couldn’t fathom why and how share prices of these companies were rising, touching astronomical valuations. But then, there was the country’s biggest domestic institutional investor, the state-owned insurer LIC, which acquired shares in five Adani companies continuously over the last nine quarters till December 2022.

The jury is still out on whether the Adani-Hindenburg Research affair is a Lehman moment. In the classical sense, it is not. The broad-based markets in India didn’t witness any pressure when Adani stocks tanked. The collapse of Adani is not a systemic risk, it doesn’t bring down the Indian financial sector; even for LIC, the exposure to Adani is less than 1 per cent of its portfolio. Will there be more unravelling in this case? Nobody is sure.

Well, this is not about the Adani Group or Hindenburg Research. This is about ‘short selling’ and how it triggered a massive debate in India after the real Lehman moment on September 15, 2008, caused a global financial crisis that spilled over to the real economy. ‘Short selling’ is an accepted practice worldwide – investors or traders borrow shares and sell in the belief that prices will fall. If prices do fall, they buy it back at a lower price, and pocket the profit.

In its report, Hindenburg Research was transparent and said it held short positions in Adani Group companies through US-traded bonds and non-Indian-traded derivatives. There are believers of its position in the US and other markets, and those who don’t. Back home in India, after prices of Adani shares plunged, the political opposition raised a hue and cry given Adani’s perceived proximity to the ruling political leadership. The Reserve Bank of India stepped in to reassure that the banking system was safe and resilient. The capital markets regulator, Securities and Exchange Board of India (Sebi), too, said it is probing the Adani stock volatility.

But 15 years ago, when the real Lehman moment happened, many prominent persons in India Inc wanted Sebi to ban short selling, arguing it led to huge market manipulation. The ban, they claimed, would prevent a free fall in the stock markets. The Lehman collapse had indeed left stock markets anxious in India. In less than two months – between September 8, 2008, and November 6, 2008 – the Nifty 50 index had dropped over 35 per cent, from 4,482 points to 2,892 points.

Clearly, there were more bears than bulls. But some argued that manipulators were rife, and were systematically pushing the markets down. In fact, NDTV Profit ran shows in October that year that Sebi was not acting tough enough on short selling by FIIs. Why should it not ban lending and borrowing of shares overseas using an instrument called participatory notes, the news channel asked.

It was under such circumstances that a ban on short selling was discussed at the highest levels – the Prime Minister’s Office – in the government. Many private sector big guns wanted the government to curb market freedoms. And strangely enough, bureaucrats and the political executive fought for reforms, and stood the ground.

What triggered the demand was a sharp fall in ICICI Bank shares – from about Rs 1,231 in January 2008, it had plunged to Rs 364 on October 10, 2008. There was a rumour of ICICI Bank ATMs running out of cash in a southern city. It didn’t help that the bank, seen as the most aggressive lender then, was borrowing at high rates of 20 per cent to meet its short-term needs. K V Kamath, the CEO of ICICI Bank, blamed it on manipulation and rumour-mongering. He spoke to then Sebi chief CB Bhave and officials in the Union Finance Ministry.

The pressure of some channels, including NDTV, Kamath and other private sector honchos reached the doors of then Union Finance Minister P Chidambaram who summoned his key officers. “Why shouldn’t it be banned?” he is learnt to have asked them.

Sebi’s Bhave had already made strong technical arguments against banning, but it was Joint Secretary K P Krishnan’s plain and simple English that won the argument. “You have very high fever. There are two options. One, take a paracetamol and sleep it through. Two, break the thermometer, and do not acknowledge you have a fever.”

Chidambaram took them to then Prime Minister Manmohan Singh’s residence the same weekend. Here, the finance ministry officials argued against the ban and pointed out that it was ironic that those lobbying from the private sector for this seemingly regressive move were the same folks who chastised the government then for its baby steps on financial sector liberalisation. Manmohan Singh was amused — he had learnt a fresh lesson on India’s political economy.



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SBI, LIC exposure within permitted limits; markets well regulated: Nirmala Sitharaman on Adani-Hindenburg row

SBI, LIC exposure within permitted limits; markets well regulated: Nirmala Sitharaman on Adani-Hindenburg row

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NEW DELHI: Finance minister Nirmala Sitharaman on Friday said she did not expect the ongoing controversy around Adani Group to affect investor confidence as India’s banking system is sound and the financial markets are “well regulated”.
Shares of Adani Group companies have nosedived in the last 7 sessions, after an adverse report by Hindnenburg Reaearch which alleged accounting manipulations by the group.
The Group has now lost over $120 billion in last 7 trading sessions, erasing over 50% of its valuation.
Speaking to a news channel, Sitharaman said that the State Bank of India (SBI) and Life Insurance Corporation (LIC) of India have already explained that they are not overexposed to Adan Group stocks.
“They have very clearly said that their exposure (to Adani Group stocks) is very well within the permitted limits and with valuation falling as well, they are still over profit. That is the word from the horse’s mouth,” Sitharaman said.

She also highlighted that India remains “an absolutely well governed” country and a “very well regulated financial market.”
“One instance, however much talked about globally, I would think is not going to be indicative of how well Indian financial markets have been governed,” Sitharaman said.
Later, State Bank of India’s (SBI) chairman Dinesh Khara also said its overall exposure to the Adani Group is at 0.88% of the book or around Rs 27,000 crore and stressed that SBI has not given any loans against shares to the group.
Lending to Adani Group projects is with regard to ones having tangible assets and adequate cash flows, Khara said, adding that the group has an excellent repayment record.

He also said there has not been any refinance request, which has come from the Adani group.
Meanwhile, public sector lender Bank of Baroda has reduced exposure to the Group over the last 2 years, and has no concerns on asset quality issues with the conglomerate.
Earlier in the day, finance secretary TV Somanathan said there was no cause for concern for depositors, policy holders or investors in any nationalised bank or insurance company due to their exposures in Adani group companies.
Adani Group stocks have remained under pressure since January 24, after US short-seller Hindenburg Research published a report alleging stock manipulation by the Adani Group and raised concerns about high debt and valuations.
The report emphasised that key listed Adani companies have taken on substantial debt, including pledging shares of their inflated stocks for loans, putting the entire group on precarious financial footing.

In its response, Adani Group issued a statement on January 29 and likened the damning allegations to a “calculated attack” on India, its institutions and growth story.
Meanwhile, a report by rating agency Moody’s said the adverse developments around Adani were likely to reduce its ability to raise capital to “fund committed capex or refinance maturing debt” over the next one to two years.
However, it said a portion of Adani’s capital expenditure was deferrable, and its rated entities did not have significant maturing debt until fiscal year 2025.



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Adani Group’s loss swells to $65 billion; Hindenburg responds to charges

Adani Group's loss swells to $65 billion; Hindenburg responds to charges

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Shares of Adani Group companies remained under pressure for the third straight session on Monday with majority of them witnessing a crash yet again.
The deepening market rout has now led to losses worth $65 billion in the group’s stock values, according to a Reuters report.
The current round of fall follows a report by Hindenburg Research last week which flagged concerns about the conglomerates debt levels and the use of tax havens.
On Monday, Adani Transmission dropped 14.91%, Adani Green by 20%, Adani Total Gas by 20%, Adani Power by 5%, and Adani Wilmar by 5%.
However, shares of flagship Adani Enterprises climbed 4.21% after its follow on public offer (FPO) was subscribed 2%.
The developments also had an impact on the stock market which remained volatile during the entire session. Benchmark BSE sensex gyrated nearly 1,000 points intra-day before staging a smart comeback in late trades on selective buying.
Adani rout hits $65 billion
Adani Group’s lengthy weekend rebuttal to Hindenburg’s report did little to soothe investor sentiments today. The 3-day selloff has now erased nearly $65 billion market value amid a share sale by Adani’s flagship that was meant to underline the tycoon’s ascension on the global stage.
While the Adani Group has portrayed Hindenburg’s allegations as baseless and an attack against India itself, the latter’s report is reviving longstanding investor concerns about the conglomerate’s corporate governance.
The saga also threatens to weaken broader confidence in India, until recently a top investment destination for Wall Street, and accelerate a nascent shift toward a reopening China.

The selloff is also fast eroding the wealth of Adani, Asia’s richest man, after his stocks were some of the best performers last year not just in the local market, but also on the broader MSCI Asia Pacific Index.
From being the 4th richest in the global billionaire rankings till Wednesday last week, Adani has now dropped to the 8th spot with a total net worth of $88.2 billion, as per the Forbes real time billionaires list. However, the Bloomberg Billionaires Index shows Adani at 7th spot with a wealth of $92.7 billion.

This is in sharp contrast to September last year, when Adani’s wealth had surged to over $155 billion, making him the 2nd richest person in global billionaires ranking and the first Indian (and Asian) to break into the top 3 list.
In a little over two and half years, Gautam Adani‘s wealth had galloped over 13 times. In January 2020 just before the onset of Covid pandemic, his net worth was about $10 billion.
In 1988, Gautam Adani had set up Adani Enterprises (then Adani Exports) to start a commodities trading business. Soon he set up Mundra port for captive export-import operations. Within a decade it also emerged as the biggest coal trading company in the country and one of India’s largest foreign exchange earners.
Adani Group’s response to Hindenburg report
The Adani group had on Sunday slammed the Hindenburg report and likened the damning allegations to a “calculated attack” on India, its institutions and growth story, saying the allegations are “nothing but a lie”.
“Needless to say that Hindenburg has created these questions to divert the attention of its target audience while managing its short trades to benefit at the cost of investors,” the group said.

The Gautam Adani-led group also said that the report is selective and manipulative presentation of matters already in public domain to caste a false narrative.
They also claimed that the Hindenburg report is rife with conflict of interest and intended only to create a false market in securities.
Some 65 of the 88 questions posed by Hindenburg are based on Adani’s public disclosures and the conduct of the American short seller “is nothing short of a calculated securities fraud under applicable law,” Adani Group statement said.
The group further reiterated that it will “exercise rights to pursue remedies to safeguard our stakeholders before all appropriate authorities.”
The Adani Group’s response comes ahead of the final few days of a $2.5 billion share sale by Adani Enterprises, which received overall subscriptions of 1% on Friday.
“Mala fide intention is apparent given its timing when Adani Enterprises is undertaking the largest equity FPO,” the group stated.
Here is full response of Adani Group

Here’s the full report by Hindenburg Research

Hindenburg responds to Adani Group’s charges
US short seller Hindenburg Research rejected Adani Group’s charge that its report was an attack on India, saying a “fraud” cannot be obfuscated by nationalism or a bloated response that ignored response to key allegations.
Commenting on the 413-page response, Hindenburg said it believed India was a vibrant democracy and an emerging superpower with an exciting future and it was Adani Group which was holding it back through “systematic loot”.

Hindenburg stood by its last week’s report that said its two-year investigation found Adani Group “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades”.
Hindenburg said the response by the conglomerate run by Asia’s richest man Gautam Adani “opened with the sensationalistic claim that we are the ‘Madoffs of Manhattan’.”
Hindenburg responded saying Adani Group “predictably tried to lead the focus away from substantive issues and instead stoked a nationalist narrative.”
“Adani Group has attempted to conflate its meteoric rise and the wealth of its chairman, Gautam Adani, with the success of India itself,” it said.
“We disagree. To be clear, we believe India is a vibrant democracy and an emerging superpower with an exciting future. We also believe India’s future is being held back by Adani Group, which has draped itself in the Indian flag while systematically looting the nation.”
Stating that a “fraud is fraud even when it’s perpetrated by one of the wealthiest individuals in the world,” it said Adani’s ‘413-page’ response only included about 30 pages focused on issues related to the report.
Here’s Hindenburg’s full response on Adani Group’s charges

LIC reviews Adani response
According to a report by Reuters, state-run Life Insurance Corporation (LIC), India’s largest insurer, is reviewing Adani Group’s response to scathing criticism by a US short-seller and will hold talks with the group’s management within days.
“Presently there is a situation that’s emerging and we are not sure what is the factual position … Since we are a large investor, we have the right to ask relevant questions and we will definitely engage with them,” LIC managing director Raj Kumar told Reuters.
LIC says it has invested Rs 36,470 crore ($4.47 billion) in Adani companies, about 1% of its assets under management.
“Of course, we are studying the 413-page reply given by Adani Group,” Kumar said on Monday about the group’s response to concerns raised by Hindenburg.

“We will also see if the concerns are addressed. If we believe the concerns are not addressed, we will seek further clarification from them.”
LIC owned a 4.23% stake in the flagship Adani Enterprises as of end-December, more than 9% in Adani Ports and Special Economic Zone, nearly 6% in Adani Total Gas and 3.65% in Adani Transmission, data from the Bombay Stock Exchange shows.
Dollar bonds continue to fall
Dollar bonds issued by entities of Adani Group continued to fall on Monday following a scathing report by a US short seller which triggered a rout in the conglomerate’s listed firms.
US dollar-denominated bonds issued by Adani Ports and Special Economic Zone continued their fall into a second week with the bond maturing in August 2027 down 5 cents to 73.03 cents, the lowest since June 2020.
International bonds issued by Adani Green Energy, Adani Economic Zone, Adani Transmission and Adani Electricity Mumbai also fell.
(With inputs from agencies)



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