'In process of filing an RTI':  Behind Sebi's show cause notice to Hindenburg; its next move in Adani case

Hindenburg Research, which has received a 46-page show cause notice from the markets regulator Sebi, said the US-based short seller was looking to learn more about the regulator's process and that it was looking to file an RTI seeking the names of Sebi employees that worked on both the Adani matter and the Hindenburg matter, along with basic details on meetings and calls between Sebi and Adani and its various representatives. 

Hindenburg Research said it would await Sebi's response and see whether the regulator provides a basic transparency on its investigations.

The US-based short seller said its understanding from discussions with sources in the Indian market is that "Sebi's surreptitious aid of Adani commenced almost immediately post-publication of our January 2023 report." 

Following the report on Adani group that wiped $150 billion off the group's market capitalisation, Hindenburg said it was told that Sebi pressured brokers behind-the-scenes to close short positions in Adani under the threat of expensive, perpetual investigations, effectively creating buying pressure and setting a ‘floor’ for Adani’s stocks at a critical time.

Gautam Adani, who was briefly worth $150 billion in September 2022, moved out of the top 20 billionaires, following the Hindenburg report. In fact, Adani's personal wealth plunged to a low of $37.7 billion on February 27, 2023.  Later, a committee was set up to probe the allegations. The Supreme Court rejected the Hindenburg report's heavy reliance on OCCPR report and third party organisation, saying such reports without any verification, could not be relied upon as a proof. The Adani group in May recouped all Hindenburg losses in terms of combined market capitalisation.

When pressed by the public and the Supreme Court to investigate the issues, Sebi appeared to flounder, Hindenburg Research said. Initially, it seemed to agree with several key findings from our report, the short seller noted. 

“The entire concern expressed by Sebi (and this precedes the publication of the Hindenburg Report) is that Sebi is unable to satisfy itself that the contributors of the funds to the FPIs are not linked to Adani.”

Later, it said, Sebi claimed to be unable to investigate further. 

"Court documents showed that Sebi had conveniently “drawn a blank” and that further enquiry could be a “journey without a destination,” underscoring its inability or unwillingness to investigate serious allegations against Adani. The media has reported that Sebi is likely to impose mere token, technical violations on the Adani Group despite the breadth and magnitude of the allegations," it said. 

In late June 2024, Adani CFO Jugeshinder Singh described some regulator notices aimed toward the group as “trivial,” apparently writing off the prospect of their severity even before the process was concluded, Hindenburg Research noted.

"This confidence may be derived in part through Adani’s relationship with Sebi. Gautam Adani met the SEBI Chairperson Madhabi Buch twice in 2022, becoming the first high profile businessman to do so, per The Hindu Business Line. One of those meetings was to discuss Adani’s $10.5 billion acquisition of cement companies ACC and Ambuja, where, according to Reuters, SEBI had specifically been examining the offshore special purpose vehicles used to fund the transaction, which were later revealed to be linked to Vinod Adani," it said.

The second meeting, Hindenburg said, reportedly in October 2022 disclosed “no specific agenda” per an earlier Right To Information (“RTI”) request.