Hindenburg steps up for Adani round two, this time with attack on Sebi

Hindenburg's original report, in which it had accused the centi-billionaire of pulling largest con, caused Adani Group's market capitalisation to crater by $150 bn

By Andy Mukherjee

It’s just as well for Narendra Modi that India’s parliament has been adjourned a day ahead of schedule. Opposition parties would definitely have pounced on Hindenburg Research’s latest report to corner the prime minister on his friendship with Gautam Adani. Lawmakers would have asked the government why the markets regulator is being so slow in completing its scrutiny of the controversial infrastructure tycoon. 
 

That’s the thrust of the the New York-based short seller’s most recent allegations. Its report Saturday didn’t make any fresh accusations against the businessman from Modi’s home state of Gujarat. Instead, it asked if India’s stock-market watchdog can be trusted as an objective arbiter, given that its chairperson allegedly had a personal investment in an offshore fund linked to the “Adani money-siphoning scandal.” 

 

Hindenburg’s original January 2023 report, in which it had accused the centi-billionaire of pulling the largest con in corporate history, caused the Adani Group’s market capitalization to crater by $150 billion. The Supreme Court in New Delhi asked the Securities and Exchange Board of India to probe the allegations of stock-price manipulation, undisclosed related-party transactions and violation of minimum public shareholding, that were all vigorously denied by the conglomerate. 

With Modi back in power for a third term, Adani’s fortunes are soaring once again. His group’s shares have recouped nearly 90 per cent of last year’s loss. And all this while, there’s no sign of a conclusion to Sebi’s court-directed investigation that was supposed to finish by April, long past its original two-month deadline set in early March last year. 

Is the probe compromised because of an alleged conflict on the Sebi chair’s part? According to documents provided to Hindenburg by a purported whistleblower, Madhabi Puri Buch and her husband, Dhaval Buch, opened an account in 2015 with a wealth-management firm in Singapore to invest in a Mauritius-registered offshoot of a Bermuda-based fund.

The Mauritian fund was run by an Adani director, and its ultimate parent was the vehicle through which two Adani associates had secretly amassed large positions in the conglomerate, according to an investigation by the Financial Times last year. Adani said at the time that the “recycled allegations” in the FT article were a bid “to revive the meritless Hindenburg report.”

According to the short-seller’s latest report, weeks before his wife became a whole-time member at the Indian regulator in April 2017, Dhaval requested the account to be registered solely in his name. In February 2018, however, Madhabi wrote to the wealth manager from her private email, instructing the $872,000 investment to be redeemed. In March 2022, she became the Sebi chair. 360 ONE WAM Ltd., the wealth-management firm, said Sunday that the Mauritius fund made no investment in Adani Group’s shares and over 90 per cent of its assets were consistently in bonds.

The conglomerate has always denied that any of its public shareholders are related parties of the family. In a fresh statement Sunday, it said Hindenburg’s latest report was a “malicious, mischievous and manipulative” selection of publicly available information. Madhabi and Dhaval Buch described the allegations as an attempt at “character assassination.” Their finances were an “open book,” they said in an initial statement. They didn’t challenge the authenticity of the whistleblower’s documents or deny their association with the Mauritius fund. 

One of Hindenburg’s main questions was this: Why did Buch and her spouse use an investment vehicle run by a three-term director of Adani's flagship firm, “a multi-layered offshore fund structure with minuscule assets, traversing known high-risk jurisdictions” like Mauritius and Bermuda, when there exist “thousands of mainstream, reputable onshore Indian mutual fund products, an industry she now is responsible for regulating?” The Sebi chief and her husband gave an answer in a more detailed response Sunday. The fund’s Chief Investment Officer Anil Ahuja, a former senior executive at 3i Group Plc, was Dhaval’s childhood friend, they said. When he stepped down as CIO, the couple redeemed their shares.  

Also, from April 2017 to March 2022, while she was already a regulator, Buch had a 100 per cent interest in a Singaporean consulting firm called Agora Partners. She passed the shares to her husband two weeks after her appointment as the Sebi chair, Hindenburg alleged.

Did Agora have publicly traded Indian firms as clients? The Sebi’s terms of service say that the chairman or whole-time member “shall not have any such financial or other interests as are likely to affect prejudicially his functions.” Buch said the consulting units — in Singapore and India — became dormant upon her Sebi appointment. Dhaval got them going again, working “with prominent clients in Indian industry,” after retiring from Unilever Plc in 2019. These changes were all disclosed to Sebi, the couple said in a joint press release. 

Politicians on either side of the aisle are unlikely to get into the technical complexities. Modi doesn’t speak about Adani, and his party is likely to deflect the new report as yet more evidence of an anti-India conspiracy in which an envious West is out to tarnish the reputation of a homegrown entrepreneur who’s helping end some of India’s most debilitating shortages of ports, airports, roads and energy.

According to this narrative, the short seller is going after Buch only because she sent a show-cause notice, on June 27, to Hindenburg, its founder Nathan Anderson, as well as New York-based hedge fund manager Mark Kingdon and his Kingdon Capital Management, for allegedly violating the Sebi’s disclosure norms while profiting from the fall in Adani shares last year.

But then, retribution doesn’t appear to be a strong motive. Neither Hindenburg nor Kingdon is a Sebi-regulated entity. There is precious little Buch can do to them by following up on the show-cause notice. Hindenburg has previously said that it expects a ban or fines “to clamp down on the prospect of more criticism of Indian companies.”

The real effect of Hindenburg’s report may be felt elsewhere. In January, the Indian Supreme Court gave a big relief to Adani when it ruled that Sebi’s probe would be the last word — and that no more investigations were needed. The Sebi chief’s alleged proximity to the situation is a new element for the judiciary to consider. If nothing else, the court could ask for a speedy end to the inquiry. In its own press statement Sunday, the Sebi said that it has concluded 23 out of its 24 investigations into the group, and the last one is close to completion. “Where investigations have been completed, enforcement proceedings initiated are ongoing and appropriate actions are being taken,” the regulator added.

The Congress Party, the main opposition, has already renewed its call for a joint probe by lawmakers into the Adani saga. It was easy for the government to refuse this demand when Modi’s ruling party had an iron-clad grip on parliament. This year’s election has eroded that advantage. On Sunday, Congress leader Rahul Gandhi, who has kept up his attack against the prime minister for favoring large monopolies, asked the government to sack the Sebi chief. He is unlikely to let the fodder from Hindenburg go to waste when parliament reconvenes for its winter session, in late November or early December. 

---

Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper