Hindenburg report on Adani Group: Corporate governance firm InGovern on Friday said that short selling is not shareholder activism and such campaigns could be disruptive for management and companies. InGovern's comments come in the wake of the report published by Hindenburg Research, a US-based short seller and activist investor group.
On Wednesday, Hindenburg published a scathing report that accused the Adani Group of market manipulation and accounting fraud. The report triggered panic selling on Wednesday that eroded the cumulative market capitalisation of seven listed Adani Group companies by around Rs 1 lakh crore.
“Short sellers are not held in high regard in global capital markets and even in the USA, many short sellers, including Hindenburg, are under investigations by the SEC (Securities and Exchange Commission) and DoJ (Department of Justice), as the short sellers are thought to achieve their objectives at all costs and detrimental to the interests of other investors," InGovern noted in the report.
Hindenburg's report was published on a day when Adani Enterprises’ Rs 20,000-crore follow-on public offering (FPO) was to open for anchor investors. The follow-on public offer (FPO) kicked off on Friday instead of Wednesday.
Short-selling is an investment or trading approach that predicts the decline in the value of a stock of a particular company.
Traders in the US use short selling as speculation, and investors or portfolio managers could use it as a hedge against the downside risk of a particular stock.
InGovern, in its report, also said that positive shareholder activism—when investors engage positively with management and work towards bringing about change — should be welcomed and not by short sellers who “are opportunist and very short-term focused".
InGovern noted that short sellers and activist investors confronting companies is a common phenomenon in the US with blue chip firms such as Apple and Tesla coming under attack. However, they are not common in India.
InGovern also noted that the Hindenburg Research report may not impact Adani group’s FPO share sale, which opened today and will be open for public subscription till January 31, 2023. It noted that the anchor book has already been oversubscribed on January 25, "given that the objective of many of the long-term investors would be to hold the stock for many years." There could, however, be some sentimental hit among retail investors.
Other crucial points in the report:
1. Short selling is not new in Indian Markets. 2. Short selling is a market mechanism and NOT wrong. 3. Short selling is healthy for Indian capital markets. 4. Short selling is a view on a stock price, it may NOT work. 5. Shareholder activism should be welcomed in Indian markets. 6. Indian companies should learn to take such reports in their stride. 7. There is a need for more investor activism in India. 8. As the Indian market matures, they should get used to these kinds of activist investors taking interest in domestic companies. 9. However Short selling is not Shareholder Activism. 10. Short sellers are opportunists and very short-term-focused. Such activism could be disruptive for management and companies. 11. Short sellers are not held in high regard in global capital markets and even in the USA, many short sellers, including Hindenburg, are under investigation by the SEC and DoJ, as the short sellers are thought to achieve their objectives at all costs and detrimental to the interests of other investors. 12. Positive shareholder activism, like ValueAct Capital does, is when investors engage positively with management and work towards bringing about change.
Earlier, billionaire investor William Ackman in a tweet on Thursday said that he found the Hindenburg report on the Adani Group "highly credible and extremely well researched".
"We are not invested long or short in any of the Adani companies... nor have we done our own independent research," Ackman said in a tweet.
On Thursday, Adani Group said that it will be evaluating "remedial and punitive action" against Hindenburg, calling the report "maliciously mischievous, [and] unresearched".
Hours later, Hindenburg said it will demand documents in legal discovery process if Adani Group files a lawsuit in the United States.
Also read: Adani Enterprises stock price falls