The Adani Group vs Hindenburg Research[Finance Fridays]
Is this the largest corporate fraud in ever? How social media is changing the dynamics of business
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It feels like tech finance is particularly crazy these days.
Binance was under investigation. Layoffs are happening left and right. Twitter is changing policies. Businesses are restructuring and merging. And Uber continues to be the not be profitable, despite having raised 25 Billion Dollars in Funding. To those that feel overwhelmed by the seeming tech collapse, breathe. This collapse has been vicious, but it didn’t come out of nowhere. Read about the Boom and Bust Cycle to learn more about why recessions are a feature of our economy, not a bug.
Amongst all this news, there was one development Hindenburg Research has released a scathing short-seller report on Adani group, a massive Indian conglomerate. In today’s post/email, we will be going over this situation. I will not be judging whether or not Adani is guilty. To do so well would require deep expertise in law, finance, and the Adani Group’s operations. I will give you an unbiased overview of the problem, how social media has muddied the waters in this discussion, and what this situation teaches us.
Key Highlights-
The players on the board- The situation has two opposing sides- The Adani Group, headed by Gautam Adani (Asia’s richest man), and the Hindenburg Research Group. HRG is a financial research group. However, they have an interesting focus-
HRG has covered several dogy groups, including their infamous report- Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America-that uncovered the fraud conducted by Nikola, an EV Manufacturer competing with Tesla. HRG is a market maker, and a report from them can spell a death sentence.
The report- HRG published a giant piece -Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History. This write-up levels several allegations against the Adani Group. “Today we reveal the findings of our 2-year investigation, presenting evidence that the INR 17.8 trillion (U.S. $218 billion) Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.” These are big claims and have generated a lot of attention.
The case against Adani- The report mentions several things that look sketchy. This includes previous cases of fraud, risky business practices, the (alleged) existence of shell companies, large family stakeholders, and much more. The most interesting to me was the allegation that Adani used shares as collateral for loans- “Adani groups Key listed Adani companies have also taken on substantial debt, including pledging shares of their inflated stock for loans…indicating near-term liquidity pressure”. To those of you that read my piece on the Ponzi-like economics of Crypto firms, this should raise alarm bells. As I covered in that article, this practice is extremely risky (and is generally illegal). Clearly, this doesn’t look great. However, it is important to consider HRG and its incentives as well.
Hindenburg Research’s Incentives- HRG is a bunch of short sellers. They make their money by betting against a company (they make money when a company’s stock price goes down). It is in their interest to make the situation look as grim as possible because this leads to more money. For example, they bring up a valid argument about how many of the Adani Group companies are have very high valuations and are not profitable. However, Hindenburg fails to highlight a key point- several of the Adani Group are now turning profitable. This means that while their valuations are crazy now, these valuations will eventually stabilize. This is not to discredit their report. I’m just sharing that the Hindenburg Group is incentivized to make the Adani group look bad.
Social Media Murkies waters- There is clearly more to this situation than meets the eye. However, having researched this situation, what stands out to me is the lack of good faith analysis of this situation in social media. Haters of Adani have latched on to this, licking their lips at the thought of Adani going to jail. Lovers of Adani are viciously defending him, claiming he’s done no wrong. There are even allegations that Adani is being targeted because he’s Indian and that we (the Indian people) should protect him because he is Indian. This is a problem I’ve discussed extensively. There is a lot of noise on the internet, so it can be hard to distinguish between signal and noise.
Why this is relevant to you- Finally, some lessons for you. Firstly, I want to ingrain the following into your mind- No one is safe. Adani looked like the king, but right now his fortunes are collapsing. The Big Tech companies, dream jobs for many, have laid off tens of thousands. FTX collapsed overnight. Businesses are becoming overgrown and overleveraged because world investors salivate at growth, even if this growth is purely hypothetical/built on shaky foundations. Start working on your personal finance, keep your eyes open for new opportunities, and keep learning. You may think you have a dream job, but it can evaporate at any moment. As a closing note- Much is being made of how much money Adani has lost (over 90 Billion). In any crash, you will hear about how someone lost billions. However, they aren’t the true casualty of the crash. Top Execs at collapsing organizations will walk out with Multi-Million Dollar paydays. Ordinary employees/associates will get nothing. Look out for yourself, because they will not.
To those that want a sane voice of reason to go over the Adani Group Scandal, watch the following video. Richard has some of the best videos on investing, economics and finance and he is a much-needed balance to the noise and hype that is too common today.
That is it for this piece. I appreciate your time. As always, if you’re interested in reaching out to me or checking out my other work, links will be at the end of this email/post. For those of you interested in taking your skills to the next level, keep reading. I have something that you will love. Also, If you like my writing, I would really appreciate an anonymous testimonial. You can drop it here.
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