Hindenburg bet against rival US short sellers with India’s Adani puzzles

Feb 1 (Reuters) – When Hindenburg Research revealed a short position in Adani Group last week, some U.S. investors said they were concerned about the actual mechanics of its trade, as Indian securities rules make it difficult for foreigners to bet against companies there.

Hindenburg’s bet has so far paid off. The claims, which the Indian conglomerate has denied, have wiped more than $80 billion off the market value of its seven listed companies and dethroned billionaire Gautam Adani as the world’s third-richest man. A $2.5 billion share sale in Adani Enterprises ADEL.NS was suspended on Wednesday.

The short seller said he took the position, which has profited from the fall in the value of Adani Group shares and bonds, through “bonds traded in the US and derivatives not traded in India and other reference securities not traded in India. ” But he revealed little about the size of his bets and the derivatives and reference securities he used, leaving rivals wondering how the trade works.

“I wanted to short it myself, but I couldn’t find a way to do it with my prime broker,” said Andrew Left, founder of Citron Research, citing Adani Enterprises and other companies.

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Hindenburg declined to comment to Reuters on the method it used to bet against Adani. Adani Group and stock regulator Securities and Exchange Board of India (SEBI) did not respond to a request for comment.


Typically, investors who want to bet that a company’s stock will fall, borrow shares in the market and sell them in hopes of buying them back at a lower price, a practice called short selling.

Short sellers like Hindenburg like to quietly build positions before revealing their thesis about a company to maximize profits. They need discretion because word of them being in the stock can sometimes cause the stock to fall.

In India, however, securities regulations make it difficult to build positions quietly. Institutional investors are required to disclose their short positions in advance, and there are other restrictions and registration requirements for foreign investors.

There are additional difficulties with the Adani Group: shares are concentrated in the hands of the Adani family and its shares are not traded on foreign exchanges.

Hindenburg’s founder, Nathan Anderson, was even excited by his peers about his bet against Adani. Left and Carson Block, the founder of Muddy Waters Research and another prominent short seller, told Reuters that their congratulatory messages to Anderson, usually when they talked shop, were answered with one word — “thanks.”

Cracking the code on how Hindenburg conducts trading could lead to more short sellers taking positions against Indian companies, which is rare, analysts said.

“Once these things (short-seller attacks) start, there are others who can look,” said Amit Tandon, managing director of proxy and management firm Institutional Investor Advisory Services (IiAS) in India.


Reuters was unable to obtain details of the Hindenburg trade. But several bankers familiar with Indian securities trading said the more profitable part of a short seller’s bet would be in the derivative trades he places.

Some of Adani’s US dollar corporate bonds fell 15 to 20 cents in the days after the report, making the bet profitable.

But there are limitations. According to one debt banker, only a few billion dollars in bonds were outstanding and could not be easily borrowed.

A more profitable way, these bankers said, would be to bet through participatory notes, or P-notes, which are lightly regulated offshore derivatives based on shares of Indian companies.

Institutions that issue P-notes are registered with the Indian stock market regulator, but anyone can invest in them without registering directly with SEBI. The investor can then use intermediaries to hide his position.

Moreover, the market for P notes is huge. Bankers said billions of dollars worth of P-notes are bought and sold each year, regulatory data shows, allowing for big bets.

(This story has been refiled to add the omitted word “to” in the main paragraph)

Reporting by Shankar Ramakrishnan, Svea Herbst-Bayliss and Karolina Mandl; Additional reporting by Jayshree Pyasi in Mumbai and Anshuman Daga in Singapore; Edited by Paritosh Bansal and Anna Driver

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