It was a sensational headline even for a short seller. Calling Adani Group the “largest con in corporate history,” New York-based Hindenburg Research, a trading outfit that first got Wall Street’s attention for raising serious questions about electric-vehicle makers Nikola Corp and Lordstown Motors Corp, took a stab at Gautam Adani, Asia’s richest man.
There’s not much of a market impact, however. Hindenburg’s report was published when Adani Enterprises Ltd, about 75% owned by its billionaire chairman, was soliciting investors for a follow-on public offering. The company still managed to sell over 18 million shares to institutional investors for 3,276 rupee ($40.15) apiece — at the top-end of the pricing band. High-profile investors include Abu Dhabi Investment Authority, according to local media reports.
Meanwhile, even though Adani saw his fortune crash by more than $5 billion in one day — a huge amount by anyone else’s standards — it hardly put a dent in the businessman’s net worth, which is still above $100 billion. The company said Thursday it was exploring legal action against Hindenburg, describing the allegations as “maliciously mischievous, unresearched.”
It’s worth asking why Hindenburg’s efforts have fallen short. According to its research, seven key listed Adani companies have 85% downside purely because of sky-high valuations.
First, the 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 Co. 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 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 Co. 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 Narendra Modi’s administration. His industrial empire, from running airports to building green hydrogen manufacturing capabilities, aligns well with Modi’s economic programs. So unless Modi changes his “Make in India” dream, short sellers do not have much of a catalyst.
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 labyrinth of shell companies. But this is a yawn to long-time emerging markets 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 Co, despite constant complaints of poor governance — criticism both companies deny. So unless Hindenburg can show that Adani won’t be the incubator of the Modi government’s industrial ambitions, or that India doesn’t have a shot at becoming the next South Korea, in the near term, its arguments are likely to fall on deaf ears.
Now 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.
More From Bloomberg Opinion:
- Adani Saga Puts Investor Trust in India in Doubt: Andy Mukherjee
- Adani's Fortune Deserves Greater Recognition: Andy Mukherjee
- A Billionaire Hydrogen Evangelist’s Big Test: Fickling & Marques
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. A former investment banker, she was a markets reporter for Barron’s. She is a CFA charterholder.
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