Home / Opinion / Columns /  Adani’s market performance may yet surprise Hindenburg

It was a sensational headline even for a short seller. Calling Adani Group the “largest con in corporate history," New York-based Hindenburg Research, an asset trader that first got Wall Street’s attention for raising serious questions about electric-vehicle makers Nikola Corp and Lordstown Motors, took a stab at Gautam Adani, Asia’s richest man.

Hindenburg’s report was published in the middle of last week, when Adani Enterprises, about 75% owned by its billionaire chairman, was soliciting investors for a follow-on public offering (FPO). The company managed to sell over 18 million shares to institutional investors for 3,276 ($40.15) apiece—at the top-end of the pricing band. High-profile investors in it included Abu Dhabi Investment Authority, according to local media reports. [But then on Friday, most of the group’s stocks listed in India saw a massive sell-off, with several hitting their lower circuit breakers and wiping out a big chunk of their market capitalization.] Even though Gautam Adani saw his fortune crash by billions, the businessman’s net worth remains very large. The company said on Thursday that it was exploring legal action against Hindenburg and described the allegations as “maliciously mischievous" and “unresearched." [“The report is a malicious combination of selective misinformation, stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts," Adani group CFO Jugeshinder Singh said.]

It’s worth wondering if Hindenburg’s efforts will have as hard an impact as it may have expected. According to its research, seven listed Adani firms have an 85% downside because of sky-high valuations. First, the alleged Adani bubble is unlikely to burst unless there’s a change in the political wind. Scan Asia’s emerging markets, and you’ll find that Adani is by no means the only conglomerate with lofty valuations and questionable corporate governance.

China’s HNA Group and China Evergrande Group naturally come to mind. For years, short sellers hounded HNA and Evergrande—to little avail. Evergrande’s chairman Hui Ka Yan, China’s richest man in 2017, in particular, was a master in the art of the short squeeze. For years, he leveraged his friendship with other tycoons to prop up his company stocks and bonds.

Shorts gained momentum only when Beijing changed its attitude. HNA got into trouble in 2017 after the central government launched a campaign against privately held companies that it deemed had recklessly pursued overseas investment deals. Similarly, Hui’s empire tumbled in 2021 as China’s real estate crackdowns deepened. Evergrande is now discussing a restructuring proposal with creditors, while the fortune of its chairman is down to about $3 billion from $42 billion, according to the Bloomberg Billionaires Index.

Or consider activist investor Elliott Management’s push to overhaul Samsung Electronics with higher buybacks and corporate restructuring. It was a huge win for the New York-based activist hedge fund. The campaign, which ran for just over four years from late 2016 to 2020, netted Elliott a 160% return, according to Bloomberg Intelligence data. Elliott had the upper hand and public support, in part because Samsung’s de facto leader Jay Y. Lee—who had been resistant to change—was mired in an ugly corruption scandal that ultimately unseated the nation’s then-president Park Geun-hye.

Adani’s fortune ballooned under the administration of Indian Prime Minister Narendra Modi. Adani’s industrial empire, from running airports to building green hydrogen manufacturing capabilities, aligns well with Modi’s economic agenda. So unless Modi changes his ‘Make in India’ dream, short sellers may not be able to count on the kind of price routs they expect in the US.

Second, many of Hindenburg’s complaints appear to focus on corporate governance, from the use of what its report describes as obscure auditors to a labyrinthe of shell companies. But this is a yawn to emerging-market investors. To them, Adani sounds just like a chaebol, the family-run conglomerates that ultimately fast-tracked postwar South Korea. To this day, they are still invested in the likes of Samsung and Hyundai Motor, despite constant complaints of poor governance—criticism that both companies refute. Unless Hindenburg can show that Adani cannot be the incubator of the Modi government’s industrial ambitions, or that India doesn’t have a shot at becoming the next South Korea, its arguments could fall on some deaf ears.

Don’t get me wrong. I like short sellers. They serve a key role in a marketplace that is prone to exuberance. But do those sitting in New York have unique insight into the intricate workings of developing nations? I’m not so sure. 

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets.

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