Adani Hindenburg Row: Gautam Adani-Backed Stocks Trade Mixed Ahead Of SC Hearing; What Happened So Far?

Adani-Hindenburg Row: The most controversial case of recent times in the business world is up for another round of hearing from the apex court. This time, the Supreme Court will look into the market regulator Sebi's probe report on the case. Ahead of the hearing scheduled on Tuesday, the billionaire Gautam Adani-backed stocks traded in a mixed mood with flagship Adani Enterprises stock rising nearly 2%. Most of the Adani stocks had a bearish to volatile start but soon showed recovery. The port-to-power empire was gripped into a slew of allegations by a US-based short seller Hindenburg's report that baffled and sent chills to financial markets since late January.

At the time of writing, Adani Enterprises traded at Rs 2506.55 apiece, up by Rs 34.70 or 1.40% on BSE. The stock gained by nearly 2% with an intraday high of Rs 2516.95 apiece.

Meanwhile, Adani Ports stock surged by nearly a per cent, and Adani Power zoomed by 1.3%. On the other hand, Adani Green Energy dipped over 1%, and Adani Energy Solutions traded in red with a muted tone. These are the top five stocks of Adani Group in terms of market capitalisation.

Further, Adani Total Gas and Adani Wilmar traded flat. The cement stocks Ambuja Cements surged by 0.8%, and ACC performed subdued. Media stock NDTV picked up by 0.8%.

The Supreme Court will be hearing the Adani-Hindenburg matter later on Tuesday.

What has happened so far?

Last week, the watchdog Sebi submitted findings of 22 out of 24 investigations that it carried into the port-to-power empire, while it awaits data from external agencies for the remaining two probes. Sebi said that the investigation has nearly reached its finality in the Adani Hindenburg case.

Of the 24 investigations, Sebi said 22 of them are final, while 2 are interim.

The interim reports are of 13 Adani Group dealings that were investigated for possible violations of related-party transaction rules. Further, Sebi carried out investigations regarding offshore deals that covered 12 foreign portfolio investors who are public shareholders under Adani Group firms.

The regulator in its final report explained that since these foreign entities are situated in tax haven jurisdictions, it has become challenging to establish the economic interest of 12 FPIs shareholders. Hence, Sebi has sought information from five foreign countries on the matter.

Sebi assured the apex court that it would take appropriate action based on the outcome of the investigations.

Similarly, The Indian Express has learnt that the Enforcement Directorate also concluded its preliminary investigation into the bombshell report of Hindenburg. The ED has also observed that a dozen companies including foreign portfolio investors and foreign institutional investors (FPIs/ FIIs) are situated in tax haven countries and emerged as the "top beneficiaries" of short selling in shares of Adani Group companies.

ED shared its findings in the case with regulator Sebi reportedly in July. The ED's report further revealed that some of these short sellers allegedly placed their positions in Adani stocks just 2-3 days before the Hindenburg Research released its lengthy report on January 24, while some others were taking short positions for the first time.

In its 2005 discussion paper, Sebi defined short selling as the sale of a security that the seller does not own. The paper said short selling is one of the long-standing market practices, which has often been a subject of considerable debate and divergent views in most of the securities markets across the world.

However, the paper added that short selling has been recognised as a legitimate investment activity by regulators of many securities markets across the world, which also have an active market for equity derivatives, including stock futures. Another feature that is common to most securities markets is a vibrant market for lending and borrowing of securities which not only compliments short selling in securities but also enables the investors to earn returns on their idle securities.

Sebi's Secondary Market Advisory Committee (SMAC) had recommended in the discussion paper, to allow all classes of investors to short sell should. That meant, apart from retail investors who were already allowed to carry short selling, even institutional investors would get to do the same.

Later, in December 2007, the market regulator granted its approval for letting all classes of investors short sell to improve market safety, efficiency and transparency.

But still, naked short sales are not permitted in India. As per Sebi's discussion paper, all investors would be required to mandatorily honour their obligation of delivering the securities at the time of settlement. No institutional investor shall be allowed to do day-trading i.e. square off their transactions intra-day. All transactions would be grossed for institutional investors at the custodians' level, and the institutions would be required to fulfil their obligations on a gross basis. The custodians, however, would continue to settle their deliveries on a net basis with the stock exchanges.

Gautam Adani's conglomerate came under the radar of the Supreme Court after Hindburg's staggering report on the group with various allegations. The short seller's report led to a more than $100 billion market rout, severe volatile market conditions, protests from oppositions and Sebi's investigation.

Four public interest petitions were filed at the Supreme Court against Adani Group, demanding directions related to allegations made by Hindenburg against the billions of dollars worth conglomerate. The move was also to come up with directions that could protect investors from such routes.

It needs to be noted that Adani Group has denied Hindenburg's allegations up to this date.

After 2-years investigations, Hindenburg's report dated January 24, said, "Gautam Adani, Founder and Chairman of the Adani Group, has amassed a net worth of roughly $120 billion, adding over $100 billion in the past 3 years largely through stock price appreciation in the group's 7 key listed companies, which have spiked an average of 819% in that period."

The short seller's report argued that "even if you ignore the findings of our investigation and take the financials of Adani Group at face value, its 7 key listed companies have an 85% downside purely on a fundamental basis owing to sky-high valuations."

It added, "Key listed Adani companies have also taken on substantial debt, including pledging shares of their inflated stock for loans, putting the entire group on precarious financial footing. 5 of 7 key listed companies have reported 'current ratios' below 1, indicating near-term liquidity pressure."

Further, Hindenburg's report highlighted that the Adani Group has previously been the focus of 4 major government fraud investigations which have alleged money laundering, theft of taxpayer funds and corruption, totalling an estimated U.S. $17 billion. Adani family members allegedly cooperated to create offshore shell entities in tax-haven jurisdictions like Mauritius, the UAE, and the Caribbean Islands, generating forged import/export documentation in an apparent effort to generate fake or illegitimate turnover and to siphon money from the listed companies.

Hindenburg also accused Gautam Adani's brother Vinod Adani. The short seller claimed to have identified 38 Mauritius shell entities controlled by Vinod Adani or close associates. It said, "We have identified entities that are also surreptitiously controlled by Vinod Adani in Cyprus, the UAE, Singapore, and several Caribbean Islands."