The net worth of one of the richest persons in India fell after a report was released by an institute named Hindenburg. Adani Enterprises shares and other Adani group stocks have nosedived after the New York-based investor research firm Hindenburg Research accused the conglomerate of stock manipulation and accounting fraud scheme over decades. What is the Adani-Hindenburg issue all about? Read on to know more about the issue from the perspective of the IAS exam.
Adani Hindenburg Issue
What is Hindenburg?
- Hindenburg is an institute specialising in “forensic financial research”. In other words, it looks for corruption or fraud in the business world, such as accounting irregularities and bad actors in management.
- Hindenburg, a US-based investment research firm, specialises in activist short-selling.
- Hindenburg Research was founded in 2017 by Nate Anderson, a chartered financial analyst and a chartered alternative investment analyst.
What is short selling?
- The Securities and Exchange Board of India (Sebi) defines short selling as the sale of a security or share that the seller does not own. In short selling, an investor sells borrowed shares in the market in the hope of buying them back at a cheaper price.
- In other words, short selling is exactly the opposite of usual stock market investments, where an investor has bought a stock, hoping that its price will rise in future. In short selling, an investor holds a short position after anticipating a decrease in the value of a stock.
- In short selling, an investor does not need to own a particular company’s shares to sell them. Instead, they can borrow shares/assets of the company from any broker or dealer.
What is Hidenberg’s allegation against the Adani group?
Hindenburg Research has alleged that the Adani Group was “engaged in a stock manipulation and accounting fraud”. The Adani Group has interests in varied sectors such as ports and logistics, power generation, agribusiness, real estate, defence, solar energy, financial services, natural resources and media.
- The research firm alleges that the Adani group has engaged in ₹17.8 trillion (US$ 218 billion) brazen stock manipulation and accounting fraud schemes over the course of decades.
- The Hindenburg’s report says that the Adani family controlled offshore shell entities in tax havens spanning the Caribbean and Mauritius to the United Arab Emirates, which it claims were used to facilitate corruption, money laundering and taxpayer theft, while syphoning off money from the group’s listed companies.
Image source: Indian Express
What is the looming concern with the report:Â
- Adani group has taken a lot of debt from Indian banks. So there is a looming threat around whether the business tycoon would be able to return the debt on time or not.
- There is risk involved in banks lending huge sums of money against shares since when a company is unable to fulfil its debt obligations its share price also often drops.
- LIC has also invested its money in the Adani group business. The investment fell sharply due to the report and there is a fear among the investors regarding the loss of money.
This would potentially lead to a rise of non-performing assets of the bank in the coming time which would adversely affect its lending capacity.
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