Chandru Chawla

Who is Hindenburg Research?

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They are an investment research firm, who claims to undertake detailed research on US / Global companies with the sole purpose of finding “short selling opportunities” and then to profit from them by making the research public.

By design, they look for companies that may show signs of financial, accounting, or legal fraud or noncompliance. If their research validates their hypothesis, they then take short positions on their securities with the sole hope that when their research becomes public, the value of the securities will fall, leading to windfall gains for Hindenburg. Their business model is well known, and these disclosures come with the research.


What are the key observations in the Hindenburg research report on the Adani group?

In their report published on 24 Jan 2023, done over 2 years, through both primary and secondary research, their key assertions are:

  • Adani stocks are over-valued. They may have a downside of as much as 85%. This means that the stocks are valued at 7x of Hindenburg’s assessment of fair value. Not only does this indicate a high amount of risk for those invested in these stocks, it also implies “grossly inadequate collateral / guarantee” for those banks / institutions who have provided loans to the Adani group.
  • Over 80% of stock appreciation has happened in the last 3 years, that includes the Covid pandemic affected period. The intrinsic performance of the group may not justify such sky high valuations
  • The ratio of Current Assets / Current Liabilities is a good indicator of how liquid a company is or how good is its position to pay off short term debt. Companies strive to maintain this ratio to at least 1.5. A ratio of less than 1 implies severe liquidity stress. The report alleges that 5 of the 7 listed companies are at Current ratios of less than 1
  • Nearly a third of its top management consists of family members, raising questions on financial prudence and adequate related party transaction disclosures. Investors are well aware that in family enterprises, interests of key shareholders / promoters may often be at odds with the interest of the company itself. A listed company endeavours to allay these concerns by professionalising the executive management to a large extent and having well documented charts on the delegation of authority
  • The group has been the subject of previous fraud investigations alleging money laundering, theft of taxpayer funds and corruption of around $ 17 bill. Money laundering simply means “entertaining entry of illicit / unknown sources of funds into the balance sheet of the company and thereby laundering it clean”. Such funds usually, though not necessarily known in this situation, originate from illicit political donations for patronage, drug and trafficking money or money from sources that may pose a threat to national security. Theft of “tax payer funds” usually implies taking loans from enterprises funded by public money and diverting them out for personal gains and then being unable to make good. Corruption could mean illicit alliances with government channels to win contracts.
  • Various family members from the Adani founding group, have been accused in the past of such allegations with seemingly dodgy resolution to those cases.
  • These family members are also alleged to be behind creation of a complex network of offshore entities, that are camouflaged in a way that hides their ownership, in dubious tax haven jurisdictions that allegedly mastermind the money laundering and round tripping activities. The latter is a mechanism that allows transfer of funds from India to offshore entities, only to find its way back- as “foreign funds” into Indian entities, but in a legally non-compliant way.
  • These offshore entities, further, lack substance – they are shell companies with little or no manpower structure to support the type of huge transactions that they are allegedly associated with. They have skeletal offices, rudimentary or no websites, sitting behind laws that support scant disclosures.
  • SEBI listing rules require that any listed company must have 25% free floating stock – which must be held by non-promoter entities. This is meant to be discouragement from creating artificial scarcity of shares in order to run up the stock price. It is alleged that many of the group companies are dangerously close to this threshold or have already flouted this by “holding shares through the offshore entities mentioned above”. The daily trading volume of shares held by such entities also points to the allegation of “share price rigging”. This would be a very serious violation of SEBI norms and may explain why the stocks are at sky high valuations.
  • The report has further alleged that various known scamsters (giving names) have at one of another, or perhaps even till today, been associated with this group of companies, adding further weight to the charges of widespread fraud.
  • One of the alleged malpractices was to circulate money between various listed and non-listed entities of the group to help inflate revenue numbers – that is – create artificial revenues and growth that may allay concerns of institutions that have lent money to these entities. Such transactions would be defined as Related Party Transactions and would require high degrees of disclosure.
  • The audit firm used by such a large multi-billion dollar global empire, is a small, unknown firm, with no “well known clients”, having a small and inexperienced staff. This alone, should raise concerns on the “competence and capability” that is needed to fairly audit the books of such a large, complex enterprise
  • Finally, the report cites that such an audacious fraud is only possible, because there is a fear of reprisal against anybody who attempts to blow the whistle


What should ordinary citizens be concerned about?

  • If you are a depositor in SBI, Canara Bank or others who have lent money to Adani Group, or have policies issued by LIC, then you should be carefully watching out for disclosures. You could also write to the Ombudsman or the Grievance cell of these institutions, requesting for comprehensive disclosures
  • If you are an investor in any of the listed Adani stocks, you have already lost a lot. Please seek advice from a competent investment advisor
  • Even if you hold shares of non-Adani companies or invest in mutual funds, you will have been impacted by the indirect losses your investments have suffered due to the prevailing sentiment. You should consult your investment advisor.
  • Is the report anti-India? Only if you believe Adani is India and India is Adani. The report is a grim reminder of how fickle corporate governance is in India. The entire “check and balance system” of internal audits, board of directors, audit committees etc along with the poor oversight from India’s statutory bodies – is called into question. Given that the world’s second richest person is at the centre of this storm, it will raise red flags for all future foreign investors.
  • Do questions of national security arise? The concerned group has control of large portions of infrastructure related to ports, airports, mines etc. Should the group fail to meet its financial obligations, the future of the ownership and governance of these national assets becomes uncertain.
  • Why did it need a foreign agency to uncover these uncomfortable facts? Extensive investigative work has already been done by journalists Paranjoy Guha Thakurta and Ravi Nair, both of whom are facing lawsuits from the Adani group.
  • Are Adani group’s answers to the allegations satisfactory? According to Hindenburg, they are not. They allege that the answers are cloaked in nationalism and the specific questions have largely been ignored. A well known and well regarded global investor, Bill Ackman, has also raised concerns after the report become public
  • What is expected from India’s regulatory bodies like SEBI, RBI, Company Law Board, ICAI, etc.? One would expect them to take this seriously and conduct independent investigations on the same. Should there be no wrongdoing, they should come out publicly in support. Should there be wrongdoing of the type alleged in the report, then actions are due on promoters, Board of Directors, Auditors as well as lending institutions who have provided public capital without necessary due diligence.
  • The Ministry of Finance and Corporate Affairs should also be concerned. A public statement on this subject and future course of action, is the least one should expect.
  • As the Adani Group has alleged the report as a “calculated attack on India”, various Indian security agencies should also publicly explain what this attack is, who is behind it and what India is doing to safeguard its interest.


Chandru Chawla has spent three decades in the global pharma industry. The views expressed here are his own

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