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Gautam Adani Strikes Back. Can He Win The Perception War?



Gautam Adani, the tycoon under attack by a New York-based short seller, outscored his accuser by a ratio of 4:1: Rejection issued by his team on Sunday night in India 413 pages in length. Hindenburg Research’s allegations of stock price manipulation and accounting fraud are included in a 106-page report, which has now been denounced by the group as “no more than a calculated securities fraud under the law. current.” Is the response, backed up by the claim that the team can pursue the remedy, as heavy as it is massive? Maybe it doesn’t really matter.

That’s because the fate of Adani’s vast corporate empire will be decided by what sounds like a rounding error to one of the world’s wealthiest entrepreneurs: In a public offering worth Ongoing 200 billion rupees ($2.5 billion) of the group’s flagship company, the major investors involved have allocated about 60 billion rupees of shares at the top of the price-per-share range from 3,112 rupees to 3,276 rupees. But after Hindenburg’s report, shares of Adani Enterprises Ltd. fell almost 20% in two trading days last week and closed slightly above 2,761 rupees on Friday. (Stocks jumped as much as 10% in early trading in Mumbai on Monday.)

In other words, the company is asking investors to buy something available in the market at a cheaper price. After all, high-income institutions and individuals can still receive their assigned quota, a failed share sale could reduce investor confidence in India and cause collateral damage. large for the rest of their portfolio. The only constituency still to be convinced is retail, who need to give out 70 billion rupees, or less than $1 billion.

Even if there are some small investors out there who want to decide after reading Adani’s answer to the 88 questions posed by short sellers, chances are they won’t be able to. At least not before Tuesday, when the public offering ends in India. They must take a leap of faith by ignoring the low price. They will assume that professional investors, analysts and the media are weighing the evidence. But with Hindenburg issuing another note, stating that Adani did not specifically answer 62 of his 88 questions, there was too much information to process quickly. That will force people to judge the situation according to their previous political beliefs. “Nationalism cannot cover up fraud,” Hindenburg said. However, nationalism can change the perception war. And that’s what matters right now.

If subscriptions increase and the share sale ends, the beleaguered Indian billionaire will have enough time to take off his shorts. Most of the Indian market participants I spoke with over the weekend believe the funding commitments will eventually be fulfilled. Adani, last counted, has a personal worth of about $93 billion. As a veteran investor in the Indian markets mused in a phone conversation, “How can Adani become the country’s most powerful business tycoon and not manage to raise money?” less than a billion dollars? I can hold either of those opinions, not both.”

It’s a tricky situation, though: Adani has denied reports that it is thinking of expanding the public offering or lowering the issue price. Those tactics can have ramifications beyond the stock market. The businessman from the state of Gujarat, home of Prime Minister Narendra Modi, is a major investor in India’s ports, airports, roads, data centres, grain depots and solar farms. . The government in New Delhi, which is looking to boost infrastructure in its annual budget on Wednesday, will have to rethink its economic strategy ahead of next year’s general election if political opponents attack Modi. If the stock offering fails (or even wobbles), the public could be uproar over the nation’s state-owned banks and life insurers getting tangled up in a man’s debt and equity. bosses have high leverage.

With so much to gain from a stock sale, it’s easy to see why Hindenburg released its report last week. It is not clear how large the short positions are and who is behind them. Hindenburg’s report only revealed that it is offshore in “US-traded bonds and derivatives that are not traded in India, along with reference securities that are not traded in India. Other degrees.” It’s also a smart strategy. In India, any bet on stock price decline must be made by borrowing the stock: So-called naked short selling is not allowed. Company managers can choose to place bearish bets and remove them. Holding a position for any length of time through local derivatives can also be very expensive.

For example, things could be much easier if a large family office based abroad decided to put real money behind Hindenburg’s report outside of India. It can be sold short through a dollar-denominated swap from the trading desk of a medium-sized international bank. (Major financial institutions may not want to jeopardize their Indian franchises with reservations like this which could upset the regulator in India.)

Regardless of the modus operandi behind the short sale, so far it seems to be working: The team lost $50 billion in stock market value in two trading days. Last week’s plunge in dollar bonds accelerated Monday morning. Clearly, bond traders were not entirely convinced by Adani Group’s response. Or perhaps, the fixed-income market is also evaluating a domestic share sale, a domino that Adani cannot allow to collapse. All weapons are legal in what is conceived as an epic battle for public opinion – including information overload.

(Andy Mukherjee is Bloomberg Opinion columnist on industrial and financial services companies. Previously, he was columnist for Reuters Breakingviews. He has also worked for the Straits Times. , ET NOW and Bloomberg News.)

Disclaimer: These are the personal opinions of the author.

(Except for the title, this story has not been edited by NDTV staff and is published from an aggregated feed.)

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