Hindenburg vs Adani: Short selling not shareholder activism, says InGovern

No new facts in Hindenburg report about Adani Group, says corporate governance firm

Short selling is not shareholder activism and such campaigns could be disruptive for management and companies, corporate governance firm InGovern has said in a note.

“Short sellers are not held in high regard in global capital markets and even in the USA, many short sellers, including Hindenburg, are under investigations by the SEC (Securities and Exchange Commission) and DoJ (Department of Justice), as the short sellers are thought to achieve their objectives at all costs and detrimental to the interests of other investors,” said the voting advisory firm.

Also read: Adani Group poses no significant downside risk to Indian banks: CLSA

On Wednesday, US-based Hindenburg—known for its short-selling bets—made allegations of market manipulation and accounting fraud against India’s Adani Group. The scathing report was released the same day flagship firm Adani Enterprises’ Rs 20,000-crore follow-on public offering (FPO) was to open for anchor investors. The report triggered a fall in shares of the seven listed firms belonging to the Adani group and eroded their market value by a cumulative Rs 85,761 crore ($10.5 billion). Shares of all seven firms extended losses on Friday.

InGovern said positive shareholder activism—when investors engage positively with management and work towards bringing about change—should be welcomed and not by short sellers who “are opportunist and very short-term focussed.”

Short sellers and activist investors taking companies head on is a common phenomenon in the US with blue chip firms such as Apple and Tesla coming under attack. However, they are not common in India.

While releasing its report, Hindenburg disclosed that it has built token short position in bonds and securities of the Adani group traded outside of India.

“As Indian market matures, they should get used to these kinds of activist investors taking interest in domestic companies,” InGovern said, adding that domestic companies should learn to take such reports in their stride.

Sharing its views on the Hindenburg Report on the Adani Group, InGovern has said, “There are no new facts in the Hindenburg report, and, at best, it is a compilation of all past allegations against the Adani group.”

InGovern is of the view that the Hindenburg report may not lead to regulatory action.

“There are no specific complaints made to Sebi for investigation by Hindenburg. Sebi, the Indian securities market regulator, or the MCA, largely act on specific complaints of fraud or market manipulation,” it noted.

Hindenburg’s note has expressed concerns over high price-to-earnings (P/E) multiples of Adani group firms and their excess leverage.

“The nature of the industries in which Adani group companies operate and data on debt holding in Adani group companies indicate otherwise. Valuation is in the eyes of those who have a position and are willing to bet on it. These days, there are many new age companies with no revenue model and with no earnings, Adani stocks may appear to be inexpensive,” InGovern said.