Economic Highlights
New
Delhi, 8 January 2024
SEBI Overturns Hindenburg
US CONCURS WITH ADANI GROUP
By Shivaji Sarkar
The
Supreme Court decision denying a special investigation team (SIT) probe into the
Hindenburg report on Adani group of companies has not come as a surprise. The
Securities and Exchange Board of India (SEBI), stock market watchdog, stand
helped the process.
On
January 3, the SEBI leveraged the Supreme Court verdict to its advantage. On January
5, it addressed the primary concern raised by the Hindenburg report regarding
short selling, deeming it a non-issue. It has allowed short selling of share as
institutional and made disclosure of such trade’s mandatory. It justifies any
activity of such proportions any time. The Adani Group or anyone else for that
matter is now free to do it. The legal acceptance of short selling shares,
which led to Parliament logjams, widens the canvas.
More
interestingly only a month back on December 5, 2023, the US government said,
“short-seller Hindenburg Research’s allegations of corporate fraud against
billionaire and Adani Group Chairman Gautam Adani weren’t relevant and did not
impact the US decision to grant $553 million for a Sri Lankan port terminal”. The
US would not invest if it was not sure of its investments being safe. In fact,
the US has never given importance to the Hindenburg report.
Shortly
after the report came out on January 30, 2023, the Adani Group damned the allegations,
terming it “nothing but a lie” and said it was a “calculated attack” on
India. After the top court’s verdict, the group says the report was driven by
“an ulterior motive” to “create a false market to allow the US firm to make
financial gains”.
The
similarity of the approach of the US government, the Adani group, silence or no
surprise over the official system in India, and all attributing the fault to the
Hindenburg researcher may not be a coincidence. Except vague charges, nothing
concrete has been told about the researcher. The SC has not differed from its
observation of May 20, 2023, when its appointed panel said, “Prima facie there’s
no manipulation by the Adani group”.
Hindenburg
released a comprehensive report accusing the Adani Group of long-standing
malpractices ranging from stock valuations to offshore shell entities. The exposé came just before the Adani Group
was to launch $100 billion stocks. The gravity of the allegations spurred
various regulatory bodies to take notice of it. The SC acknowledged the
seriousness and initiated an investigation.
The SEBI
started its probe into market manipulation and fraudulent activities. The opposition
parties seized the opportunity to raise questions and demanded answers leading
to many logjams and sharp barbs in both Houses of Parliament. Citing the
magnitude of the allegations, the Opposition called for a thorough
investigation to ensure accountability.
It led
to suspension of Congress leader Rahul Gandhi and later Trinamool firebrand
leader Mohua Moitra. On these and host of other issues, even the December
winter session of Parliament witnessed uproarious scenes, resulting in
unprecedented suspension of 146 MPs. However, despite the top court’s ruling, it
remains a raging political issue, which may become volatile in the ensuing 2024
election battle.
The
Hindenburg Report had shaken the Adani stocks. The report said that its
two-year investigations reveal that “Rs 17.8 trillion ($ 218 billion)
conglomerate engaged in a brazen stock manipulation and accounting frauds over
the decades”. It disclosed that it held short positions in Adani company
through US-traded bonds and non-Indian-traded derivatives. It alleged Adani
improperly using tax havens and expressed concerns about its high debt levels.
This sparked a $150 billion meltdown in shares of Adani’s publicly listed
companies last year. The shares are still reported to be down by about $47
billion.
Within a
week of the 32000-word report, the Bombay Stock Exchange had deep scars.
Investors lost Rs11.8 lakh crore at BSE and Nifty. Bank stocks suffered the
worst collateral damage. Ripples continued through the year though now Adani
Group claims it made up the losses. The Adani group released a 413-page
response to clarify its position and lambasted Hindenburg for using the company
reports itself to malign it through short selling “to book massive financial
gain through wrongful means at the countless investors”.
Hindenburg
retorted short selling was a part of its research methodology to unravel the
manipulations. A short sell is defined as a trading strategy where an investor
borrows shares of a stock they believe will decrease in value, sells them, and
then hopes to repurchase the shares at a lower price to make a profit. It is
not illegal either in the US or in India.
In May,
a Supreme Court-appointed committee in an interim report said it saw, “no
evident pattern of manipulation” in the Adani group of companies and there was
“non regulatory failure”. Simultaneously, it cited many amendments the
SEBI made between 2014 and 2019. These constrained the SEBI’s ability to
investigate. The panel also said that its probe into alleged violation of money
flows from offshore entities had “drawn a blank”. Regulators are known to
modify rules to widen their ambit. In this case, just the contrary happens.
Newspapers
went to town with many stories. While rejecting the demand for a SIT to go into
the allegations, the SC also maintained that the reliance on newspaper articles
or reports by third party organisations as the basis for questioning
investigation by a specialised regulator does not make sense. It also rejected
reports by the Financial Times and the Organized Crime and Corruption Reporting Project (OCCRP), a global network of investigative journalists
with staff on six continents, in August. This is reminiscent of the 1950 SC rulings
on freedom of Press and expression. It was implied that newspapers are not
frivolous publication and editors were supreme in editorial decisions.
Independent
petitioners questioned the amendments by SEBI on foreign portfolio investors
(FPI), diluting the requirements of disclosure of beneficial owners. The court
on the contrary held that the amendments tightened the regulatory framework. On
the 2014 probe by Directorate of Revenue Intelligence (DRI) into stock
manipulation by Adani group, through overvaluation of power equipment purchased
from a UAE subsidiary, the SC noted the issue had already been settled in
favour of the Adani group.
Senior
lawyer Mahesh Jethmalani alleged that a group was filing cases with a political
motive at the behest of foreign forces. No judicious system could function with
such premise. Judgments apart, there could be different interpretations. It may
be a reprieve to a company but socially and financially stock manipulations are
grave and sensitive. It raises questions on issues of ethics, morality, and
securityof the investors.
Stock
manipulations are not new. These brazenly came to the fore in 1992 and there
have since been many shady activities during the last 30 years. The present
incident exhibits proliferation of sophisticated operations shaking confidence
in opaque manoeuvrings. ---INFA
(Copyright, India News & Feature Alliance)
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