In light of recent events, SEBI (Security Exchange Board of India) released a shocking revelation regarding the Hindenburg report on Adani Entreprises. In its report, the regulator mentioned that the US-based research firm Hindenburg made a profit-sharing deal with Kingdon Capital Management LLC to share research reports before making them public. Ultimately, this resulted in the hedge fund earning billions of dollars on their short bets while wiping $153 billion of Adani’s market value last year. Even more shocking is that one of the major banks in India helped Kingdon execute these trades.
Decoding The Events
After receiving the reports, Kingdon started subscribing to the shares of the K India Opportunities Fund (a Mauritius-based investment vehicle) and transferred around $43 million in two tranches to build short positions in Adani Enterprises. They further signed a contract with Kotak Mahindra (International) Ltd., or KMIL. Which helped them in executing the trades. After receiving the funds from Kingdon, K India built a short position of 8,50,000 shares just a few days before the report’s release, between January 10 and 20. They made these using future contracts and then squared off their position in the subsequent month between February 1 and 22. According to SEBI, this transaction resulted in a gain of $22.3 million for the stakeholders involved.
They further mentioned that Hindenburg violated the country’s laws by publishing a report as it is not registered as a research firm in India. SEBI also accused them of misrepresentations and inaccurate statements in the report that were purposely done to mislead readers. “These misrepresentations built a convenient narrative through selective disclosures, reckless statements, and catchy headlines in order to mislead readers of the report and cause panic in Adani group stocks, thereby deflating prices to the maximum extent possible,” SEBI mentions in their press release.
The regulator is currently conducting its investigations and has yet to reach a conclusion.
