Hindenburg’s Short Causes Adani Rout

    Stockholm (NordSIP) – As the consensus towards green investments continues to gain momentum amid scandals and controversies, one of the main concerns for sustainable investors is the fear of greenwashing – when a project attempts to shroud itself in the cloud of environmentalism to attract cheaper funding.

    The Controversial Adani

    One man that has often been under the microscope is Gautam Adani, and his industrial, energy and infrastructure conglomerate – the Adani Group. The company has attracted tremendous criticism for the environmental and social impact of its exploitation of coal mines in Australia, and has been blacklisted by investors, not least BNY Mellon and Norway’s KLP.

    Nevertheless, investor demand for Adani appears to remain strong, with investors supporting its acquisition of Holcim’s Indian cement business and the construction a new copper-smelting plant and investments in aluminium and iron ore projects to the tune of over US$17 billion. At the same time, the company continues to advertise its green credentials and ambitions. At the 2022 World Economic Forum, Adani took the opportunity of pledging to grow 100 million trees by 2030 to describe itself as standing “at the forefront of this ambition to tackle the climate and nature crises.”

    So far, investors have been willing to ignore the criticisms aimed at Adani. In a recent interview to the Financial Times, Gautam Adani boasted that his lenders understood his business model and that the market continued to support his growth. Thus bolstered, Adani Enterprises Ltd began a record US$2.45 billion secondary share sale for retail investors on Friday. However, this confidence is now being put to the test.

    Hindeburg Shorts Adani

    On January 24th, Hindenburg Research, an investment research firm, announced it has “taken a short position in Adani Group Companies through U.S.-traded bonds and non-Indian-traded derivative instruments”, based on its own research initiative. “Today we reveal the findings of our 2-year investigation, presenting evidence that the INR 17.8 trillion (U.S. $218 billion) Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades. (…) We believe the Adani Group has been able to operate a large, flagrant fraud in broad daylight in large part because investors, journalists, citizens and even politicians have been afraid to speak out for fear of reprisal,” Hindenburg Research says. Hindeburg’s is not alone in its concerns about the creditworthiness of Adani. At the end of 2022, CreditSights warned that errors in debt report on India’s Adani group and that the group was ‘deeply overleveraged’.

    The announcement was followed by a 20% drop in the value of Adani enterprises stock value. Jatin Jalundhwala, Group Head of Legal at Adani, responded with outrage to Hindenburg Research’s announcement, describing its as “maliciously mischievous” and “unresearched” and noting that  “it has adversely affected the Adani Group, our shareholders and investors. The volatility in Indian stock markets created by the report is of great concern and has led to unwanted anguish for Indian citizens. Clearly, the report and its unsubstantiated contents were designed to have a deleterious effect on the share values of Adani Group companies as Hindenburg Research, by their own admission, is positioned to benefit from a slide in Adani shares.”

    The company went further adding it is “deeply disturbed by this intentional and reckless attempt by a foreign entity to mislead the investor community and the general public, undermine the goodwill and reputation of the Adani Group and its leaders, and sabotage the FPO (Follow-on Public Offering) from Adani Enterprises,” Jalundhwala added.

    “We are evaluating the relevant provisions under US and Indian laws for remedial and punitive action against Hindenburg Research,” Jalundhwala concluded, ominously.

    Stay Posted for the Greenwashing Sequel

    Regardless of the outcome of the Hindeburg trade, investors are bound to consider the ESG risks of the Adani stock. Whether it is about the ‘E’ or the ‘G’ some alarm bells should be going off. Meanwhile, Jupiter Asset Management, BNP Paribas, Société Générale and Goldman Sachs are cited as anchor investors in the equity offering concluding next week. With the stock price falling and currently trading below the advertised sale price already, the deal may be in jeopardy for purely financial reasons and investors may end-up pulling out. But stay posted for the post-close questioning of those international firms that end up supporting this interesting deal.

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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