Speaker 1: France scene. We are going to start this week unpacking
Speaker 1: this rather epic clash of the titans that's been unfolding
Speaker 1: on financial markets the last few weeks. India's a Danni
Speaker 1: Group says it's exploring legal action against the US short
Speaker 1: seller Hindenburg Research. A billionaire hedge fund manager Bill Ackman
Speaker 1: says he found a Hindenburg Research report alleging fraud and
Speaker 1: manipulation at a Danny highly incredible go to. Amadanni's businesses
Speaker 1: have now lost one eight billion dollars in a week
Speaker 1: after allegations of fraud and stock manipulation leveled by short
Speaker 1: seller Hindenburgh. I mean, really one of the most intriguing
Speaker 1: financial stories of the decade about an Indian business empire
Speaker 1: that had over a hundred billion dollars hundred billion dave
Speaker 1: wiped off its dark market. So it all kicked off.
Speaker 1: On the twenty four January, US activist short seller by
Speaker 1: the name of Hindenburg Research released this bombshell report. Just
Speaker 1: a reminder, you know, an activist short seller bets on
Speaker 1: the prices of assets falling and then they go public
Speaker 1: with their claims to try to act really make that
Speaker 1: happen and it certainly has worked in the case of Hindenburg.
Speaker 1: Now a Donni Group has denied the claims. The Hindenberg
Speaker 1: research basically alleges that the Donna Group companies had engaged
Speaker 1: in decades of brazen stock manipulation and accounting fraud. It's
Speaker 1: also claimed it's companies had a substantial debt which put
Speaker 1: the entire group on a precarious financial footing. Yeah, and
Speaker 1: the actual quote from Hindenburg is quite remarkable, and this
Speaker 1: is a quotation. They've called a Danni the largest con
Speaker 1: in corporate history. And as you said, fran Seeing, of
Speaker 1: course a Dannie vigorously denies those claims. But still investors
Speaker 1: fled and have to say it's a pretty damning report.
Speaker 1: And a Dannie appears at some point a couple of
Speaker 1: days after these allegations in the video posted online to
Speaker 1: reassure investors everything will be fine for me, the invest
Speaker 1: of my investor. It is better amount and everything secondary.
Speaker 1: The fundamentals of our company are very strong. Our balance
Speaker 1: it is healthy and Essex robust. Despite that attempt at reassurance,
Speaker 1: within just a week, the total market value of the
Speaker 1: group of a dining related companies and they've got holdings
Speaker 1: across a whole range of industries from energy to construction
Speaker 1: was wiped up by an enormous amount. I'm David Merritt
Speaker 1: and I'm Francine Laque and this is in the City,
Speaker 1: Bloombergs podcast, connecting you to the stories and the voices
Speaker 1: at the heart of the City of London. This week
Speaker 1: we delve into the wider ramifications of the Danne Hindenberg
Speaker 1: clash nearly a month after the release of the report.
Speaker 1: What's been the fallout for credit markets? What would it
Speaker 1: mean for the investor makeup in the region now and
Speaker 1: in the future, and could this clashed spur a wider
Speaker 1: short seller revival with us shually ran Bloomberg Opinion carmn
Speaker 1: this covering Asian markets and Tree video back to Assalam,
Speaker 1: Global executive editor overseeing global finance investing in legal coverage Tree.
Speaker 1: Could you stop also just by explaining a little bit
Speaker 1: about Adani and who they are and why they're so important.
Speaker 1: I mean, I remember when I worked in Mumbai a
Speaker 1: decade ago. You know, it was a big company, but
Speaker 1: it wasn't as significant as it is now. Tell us
Speaker 1: a little bit about the history of this organization and
Speaker 1: of Danni himself. Adani has burst into sort of the
Speaker 1: consciousness in the past decade. As you say, it's a
Speaker 1: it's a good time for him to look at in
Speaker 1: terms of how you've seen this coming of age, if
Speaker 1: you will, of his empire and his group of companies.
Speaker 1: You know, he was considered one of India's original coll barons.
Speaker 1: So his his DNA very much comes from the commodity side.
Speaker 1: He hails from Gujarat and one of the western states
Speaker 1: in India where the Prime Minister Narendra Modi also hails from.
Speaker 1: And that's a key connection, isn't it. That provenance of
Speaker 1: of Guara and their fates at and slightly entwined they not,
Speaker 1: that's correct. And and in recent years Adani has sort
Speaker 1: of come to be viewed as a proxy in a
Speaker 1: way for this rising India, this emerging India, and he
Speaker 1: has very closely hued to Mody's own vision for you know,
Speaker 1: the ascent of this economy in a in a very
Speaker 1: big way. In recent years. You know, he has also
Speaker 1: branched out into everything from green energy to you know,
Speaker 1: more sustainable ways of doing business in a departure from
Speaker 1: his roots on the commodity side. And and now, of course,
Speaker 1: you know, there was one point before Hindenburg's report became
Speaker 1: public when he was on track to be one of
Speaker 1: the world's richest men. He was Asia's richest man, and
Speaker 1: and he saw all of that sort of coming crashing
Speaker 1: down fairly quickly in the wake of Hindenburg's report. So shurely,
Speaker 1: what is Einenberg accusing Adania? So they are true things,
Speaker 1: but the most important allegation is stock manipulation. According to
Speaker 1: India security security laws, stock has to be listed if
Speaker 1: less than twenty five percent of its total shares are
Speaker 1: free flow basically are now controlled by company insiders. And
Speaker 1: then what Hindenburg was saying was that, you know, like
Speaker 1: the Adone family is using obscure overseas investment vehicles to
Speaker 1: buy into its stocks, and that in effect that they
Speaker 1: control more than seventy of its shares, and that they
Speaker 1: use their controlling power to manipulate the stock prices to
Speaker 1: let them sort by I don't know, two three percent
Speaker 1: a year, And that's the most striking accusation. They also
Speaker 1: talked about into a corporate loans, which is actually pretty
Speaker 1: common among Asian conglomerates. So what it means is that
Speaker 1: if you're a big conglomerate, you use company as cash
Speaker 1: flow to pump into company B. So they also talked
Speaker 1: about a little bit about that. I mean, so this narrative,
Speaker 1: I mean, it's so astonishing if anyone hasn't been following
Speaker 1: this again, anyone listening to this as shre was mentioned,
Speaker 1: the enormous creation of wealth around this company over a decade,
Speaker 1: tracking the rise of Moody and really kind of mirroring
Speaker 1: the emergence of India as an enormous world economy. Then
Speaker 1: to sort of pop and bust like this. Of course,
Speaker 1: the name Hindenburg is named after the famous exploding airship,
Speaker 1: and that's really what's happened here. So not only this
Speaker 1: record creation of wealth, but then the destruction in a
Speaker 1: couple of weeks. I mean it's it was more than
Speaker 1: a hundred billion dollars of value evaporated. How is that
Speaker 1: being seen in India? Sri? Because if Adanni mirrored the
Speaker 1: rise of India, is this attack and this implosion of
Speaker 1: wealth being seen as a real attack on India as
Speaker 1: a whole. Some elements of that narrative have been apparent.
Speaker 1: I mean Adani's own press releases and the statements coming
Speaker 1: out of the company have perceived this as an attack
Speaker 1: on India. There is a sense in those statements that
Speaker 1: he is being unfairly penalized. He has, by the way,
Speaker 1: rejected and refuted all of these allegations, so there's very
Speaker 1: much a sense in in some camps this is a
Speaker 1: short seller with some kind of an agenda to bring
Speaker 1: down the Indian sort of story. But there is a
Speaker 1: counter narrative to that. Over the years, there have been
Speaker 1: several scandals, and you know, I would say compared to
Speaker 1: other investors, it's a sophisticated base of retail investors, and
Speaker 1: I think there is some actual worry playing out. A
Speaker 1: lot of wealth is tied up, not just Adanie's personal wealth,
Speaker 1: but retail wealth is tied up in the Indian stock market,
Speaker 1: So there is a good deal of worry about how
Speaker 1: this might affect personal retail wealth. Shouldly, you've been writing
Speaker 1: a lot about the parallels with ever Grand. This is
Speaker 1: the big Chinese giants that really rippled through global markets.
Speaker 1: Is it worse than ever Grand? I mean, can you
Speaker 1: actually really drop parallels between the two. I'm pretty sure
Speaker 1: we enjoy the parallel. For instance, India's financial regulators have
Speaker 1: been coming out talking about the Indian banking system is
Speaker 1: exposure to Adani and then State Bank of India, access Bank,
Speaker 1: all these state owned banks that are coming out to
Speaker 1: talk about the exposure. And we saw that with ever
Speaker 1: Grand already right, and then ever Grand was seen as
Speaker 1: symbolizing China's financial risks, while Adoni tells the tale of
Speaker 1: an aggressive over alleged over leverage conglomerates with poor corporate governance,
Speaker 1: and people are starting to see that in some other
Speaker 1: Indian conglomerates. Um. But I think in one sense Adani
Speaker 1: is a little bit worse than ever Grant in that
Speaker 1: it has managed to attract very prime blue chip global investors,
Speaker 1: whereas ever Grand. Everyone knows where ever Grand was, and
Speaker 1: the surrounding the Evergrand over the years there was basically
Speaker 1: speculative hedgements and the special situation distress funds. So I
Speaker 1: think it's Adani for our is a big wake up
Speaker 1: call for global investment banks and the blue chip credit funds.
Speaker 1: I think that's really interesting because of course there's a
Speaker 1: retail story for the investor in India and this kind
Speaker 1: of nationalist line, But this company was so big that
Speaker 1: its investors were all around the world, and you've written
Speaker 1: a fascinating piece about how this whole process means their
Speaker 1: investor base is shifting, and we're seeing now in the
Speaker 1: havoc amid those big sell off from the shares, different
Speaker 1: sorts of investors coming in. Can you talk a little
Speaker 1: bit about that and what it means for the company's future.
Speaker 1: Adani is uh in many ways much better than ever
Speaker 1: Ground group in soliciting global funds. I'm just reading off
Speaker 1: Adonne's financial statement. That's what the company said themselves. As
Speaker 1: of March twenty twenty two. Out of its long term debt,
Speaker 1: eighteen percent came from global international banks, thirty seven percent
Speaker 1: came from bounds and most of that is all abounds.
Speaker 1: Also foreign investors. Ever, Grand never had any of that.
Speaker 1: For instance, the global investment banks gave a Danny about
Speaker 1: one point five billion in margin longs that are pledged
Speaker 1: by data backed by Adoni's various stockholdings, and the company
Speaker 1: had to buy back a lot of that. And also
Speaker 1: last year Adoni bark Seems Indian cemented business for or
Speaker 1: for six point five billion U S dollars and then
Speaker 1: the company only came up with one point five billion
Speaker 1: of cash, and the rest of it was to finance
Speaker 1: with bridge loans and mezzollien LANs arranged by global banks
Speaker 1: from like Barclay's to Deutsche Bank to a Sili group.
Speaker 1: So these banks actually have a lot more exposure relatively
Speaker 1: speaking to Adoni than China ever Grand Group surely is
Speaker 1: there something that could be systemic here at this point
Speaker 1: actually pointed out there's you know, it has been easy
Speaker 1: to pinpoint where the pain has been. There are a
Speaker 1: handful of global banks that are caught up here. Now
Speaker 1: the extent of the leverage and the extent of some
Speaker 1: of these margin loans isn't really fully public. And if
Speaker 1: if it does emerge through the course of whatever investigations
Speaker 1: that take place from here on now, or further digging
Speaker 1: from the short seller, that there is more leverage than
Speaker 1: we think there is, it could get larger. You already
Speaker 1: have the likes of MSCI who are contemplating removing these
Speaker 1: companies and the addane companies from its index, and that
Speaker 1: will have a ripple effect around the world. So what
Speaker 1: you're essentially seeing as a multidimensional fallout that's rippled across
Speaker 1: the globe. I mean, it's an enormous amount of money,
Speaker 1: as I said earlier, to evaporate, and I just dive
Speaker 1: a little bit more into this research outfit, Hindenburg. It's
Speaker 1: run by this person called Nathan Anderson. We profiled him
Speaker 1: this week in Bloomberg Business Week. I think one thing
Speaker 1: that occurs to me is, you know, this is an
Speaker 1: enormous company and we've just been talking about investors all
Speaker 1: around the world. Why did nobody has noticed this? If
Speaker 1: this proves correct, his hundred page report makes some very
Speaker 1: serious allegations which have been caused refuted by the company.
Speaker 1: But why does it take a short seller to shine
Speaker 1: a light like this onto our company of this size.
Speaker 1: Many of these allegations have been made before, investigated by
Speaker 1: SEBI and other authorities in India and then subsequently dismissed.
Speaker 1: So it's not like investors weren't aware of some of
Speaker 1: these opaque vehicles that were lurking in the background. There
Speaker 1: have been stories in the press predating the Hindenburg report
Speaker 1: that talk about some of these companies that operate out
Speaker 1: of Mauritius, some of these offshore vehicles. What Hindenberg did
Speaker 1: and by by Hindenberg's own admission in that hundred page report,
Speaker 1: they have been looking into this company for upwards of
Speaker 1: two years at this point. What they did was very
Speaker 1: systematically map out some of these relationships, some of these
Speaker 1: obscure holdings, and juxtaposed it really with how much we
Speaker 1: don't know. You might recall with the case of wire Card,
Speaker 1: for instance, it did take a short seller report to
Speaker 1: not only uncover some of the issues with wire Card,
Speaker 1: but also galvanized German regulators into action. So in a way,
Speaker 1: we're seeing short sellers almost emerge as the auditors. Where
Speaker 1: auditors have failed, the short sellers are coming in and
Speaker 1: doing the auditing work for them in a way right
Speaker 1: for the regulators could remember, I mean the wild Card cases,
Speaker 1: it was amazing if people don't know that this German company,
Speaker 1: and it was actually called up by a journalist as well,
Speaker 1: and the German regulator investigated the journalists at the Financial
Speaker 1: Times rather than the company or accused them of creating
Speaker 1: this rumor. So why the regulators failing here to spot
Speaker 1: things at the short sellers are able to highlight? You know,
Speaker 1: is there a is there a regulatory problem that you
Speaker 1: mentioned Seby have investigated a dine in the past, but
Speaker 1: no one seems to have taken their clearing of the
Speaker 1: company seriously, right, that's right. It does speak to some
Speaker 1: fundamental lack of either its authority that regulators have is
Speaker 1: it resources. In the case of wire Card, you know
Speaker 1: there was, as you say, the regulators were happy enough
Speaker 1: to accuse journalists of market manipulation but actively looked the
Speaker 1: other way. And and the auditors, I mean, I think
Speaker 1: something needs to be at about how strong controls are
Speaker 1: around the auditors, what they look at, whether there are
Speaker 1: disclosures that you know, past muster from the accounting and
Speaker 1: auditing end that really shouldn't. So it does speak to
Speaker 1: the need for a more robust regulatory regime, not just
Speaker 1: in India but just worldwide. Really, surely we're a lot
Speaker 1: of these investors based are they foreign investors or are
Speaker 1: they Indian investors? That's the thing I think, going back
Speaker 1: to the point of why it takes this one short cellar,
Speaker 1: I think the problem with Adani is that if you
Speaker 1: just look at their financing, half of the money came
Speaker 1: from international investors. And I'm sorry to say that, even
Speaker 1: though like those of us saying Asia know about all
Speaker 1: these allegations against a daily over the years, a lot
Speaker 1: of investors based in London and New York. They have
Speaker 1: been sleeping. So it's a sleep of the whale. Some
Speaker 1: of these some of these people and now and now
Speaker 1: now paying the price. Yes, yes, but some of the
Speaker 1: other investors coming in now you write about oak Tree
Speaker 1: Capital Management there and you know, an opportunity to firm
Speaker 1: Davidson Kemal Capital Management. They're seeing an opportunity here, right,
Speaker 1: So is there actually an upside for for investors with
Speaker 1: the right appetite for risk here? Absolutely? I mean they
Speaker 1: are very experienced. Both funds are very experienced in terms
Speaker 1: of y Asians and conglomerates. Auktree very famously sees a
Speaker 1: large product land are of China Evergrand Ever Grand Group
Speaker 1: in Hong Kong. According to my sourcing, they're engaging in
Speaker 1: the lawsuit with the Chinese government over this. That takes
Speaker 1: some That takes some nerve, I think, yes, over over
Speaker 1: uniting our Unit Group, which does a lot of presidente
Speaker 1: in pinks and manufacturing, uh you know campaign. But the
Speaker 1: point is these are very experienced the distressed hedge funds
Speaker 1: who have the appetite and basically the experience to go
Speaker 1: through all of that. Whereas in the past what we
Speaker 1: saw was you know, like some European wealth funds, for instance,
Speaker 1: Norwegians wealth fund and its biggest pension. They basically just
Speaker 1: check the box and say, okay, Adani is doing green energy,
Speaker 1: let's buy into that. They didn't really knock into it.
Speaker 1: Mr Donne is not gonna want these investors on his books, right,
Speaker 1: I mean he's going to try and can you can
Speaker 1: you shape them off? Do you think? Well? I mean
Speaker 1: these investors they probably just were like Adny to buy
Speaker 1: back some bombs, right. They bought those bombs at seventy
Speaker 1: cents a dollar. If Adani just bias for eight or
Speaker 1: ninety cents a dollar, they will be happy to go away.
Speaker 1: And I'm sure Adani family does not want those distressed
Speaker 1: hatch funds out of their back. Actually, we had one
Speaker 1: analysts say that, you know, the Sadani crisis could actually
Speaker 1: derail Moody's economic vision. I mean, that's that's a pretty
Speaker 1: punchy headline. Do you agree? I think so? I Mean
Speaker 1: the way I see a Danny is, you know, the
Speaker 1: whole industrial ambition is the public, private and partnership. Right
Speaker 1: like with China, basically it's all public. The Chinese government
Speaker 1: took on a lot of that um it's uh stay
Speaker 1: owned companies books, whereas in India there is a public
Speaker 1: private partnership. But for for this partnership to work, the
Speaker 1: body and the adonney they have to get along right
Speaker 1: and the adoney cannot fail. And at this point the
Speaker 1: private part is failing a little bit, which makes that
Speaker 1: the next question is how will the Indian government finance
Speaker 1: all this infrastructure ambition. I do think it debils body
Speaker 1: a little bit, if I may jump in there. We
Speaker 1: also had a very good story that moved on how HSBC,
Speaker 1: one of the biggest global banks with a huge footprint
Speaker 1: in UM, China and Hong Kong, is getting pretty big
Speaker 1: on India right now. And so you know, you do
Speaker 1: have to remember though that you know, while some investors
Speaker 1: are looking skeptical about the India story, there are still
Speaker 1: the demographics are good, you know, the growth story. You know,
Speaker 1: some believe, you know, it's still intact. My own senses
Speaker 1: that there will be a turn of some sort where
Speaker 1: you'll see, you know, a more skittish base of investors
Speaker 1: say that this is too much risk for them and
Speaker 1: the due diligence isn't said work. There while in terms
Speaker 1: of how how deeply they have to drill down, you
Speaker 1: may find investors with appetite for risk spot this as
Speaker 1: a bit of an opportunity for them. Yeah, and perhaps
Speaker 1: is this a sign of kind of the maturing Indian
Speaker 1: market in terms of global investors. Know, these sorts of
Speaker 1: things happen all around the world. You mentioned work Card,
Speaker 1: which was a German scandal, many examples of course in
Speaker 1: the United States. So maybe investors around the world you
Speaker 1: mentioned there was maybe a sleep at the wheel people
Speaker 1: now just getting a bit smarter about how to invest
Speaker 1: the Indian market, I think so. I think some of
Speaker 1: it is also they got scared by China, by China's
Speaker 1: drama last year, right, so they decided to flee flee China,
Speaker 1: and then India was a very natural place for them
Speaker 1: to go to. And the but the India assets valuation
Speaker 1: has always been very high, right, But so they're willing
Speaker 1: to overlook a lot of the perhaps negative aspect, likes
Speaker 1: the corporate governance. They just fall into whatever whatever valuation.
Speaker 1: And at this point it's a wake up court. They
Speaker 1: were saying, Okay, we're still looking India, but we need
Speaker 1: to be mindful of all the pay force as well.
Speaker 1: What kind of backlash are we seeing in India. I
Speaker 1: know there's there's been a couple of media company saying,
Speaker 1: look at the humbling of a Dani will be a
Speaker 1: test for the country's capitalism. Does this make or break
Speaker 1: the country? Adani had his own rebuttal upwards of four
Speaker 1: page rebuttal to the Hindenburg report, and I will quote
Speaker 1: from that statement. The statement says, this is not merely
Speaker 1: an unwarranted attack on any specific company, but a calculated
Speaker 1: attack on India, the independence, integrity and quality of Indian
Speaker 1: institutions and the growth story and ambition of India. So
Speaker 1: you're very much seeing this through the lens of nationalism. Um.
Speaker 1: So this is very very deeply wrapped up with that
Speaker 1: sort of rhetoric. At this point, the government itself has
Speaker 1: not said anything about this. They've they've remained somewhat silent.
Speaker 1: The opposition has raised some questions in the Arliament about
Speaker 1: this unfolding affair. So there is a sense though that
Speaker 1: from here on now, especially if the fallout gets worse,
Speaker 1: there is a sense that there's more money to be
Speaker 1: lost here, and there's some sort of undermining of the
Speaker 1: case for India's growth story, you will start to see
Speaker 1: that rhetoric start to change. I guess the question is
Speaker 1: at what point will the Indian regulators as well as
Speaker 1: the Indian government say this is this is enough. We
Speaker 1: need to kind of address this head on should we
Speaker 1: just so to sum it up, putting what do you
Speaker 1: think the exposure of London is to a Donnie either
Speaker 1: through the investor base were also we saw Boris Johnson's
Speaker 1: brother having to resign from a firm that was linked
Speaker 1: to a Donny. So if you look at it, there
Speaker 1: are three ways. So you have the banking exposure, you
Speaker 1: have the investment exposure, and then you have exposure that
Speaker 1: many people who are prominent in the city or move
Speaker 1: in prominent circles may have to the Adorni group of companies.
Speaker 1: On the banking side, I'd say, you know, you have
Speaker 1: Barclays Standard chartered. You know a lot of these banks
Speaker 1: have already been named as banks who have done business
Speaker 1: with Adanni's group of companies in the past. And what
Speaker 1: this is going to test is their appetite to come back.
Speaker 1: We're already seeing some banks say that they don't want
Speaker 1: to be expanding these lending relationships and so I think
Speaker 1: you will start to see many of these banks back
Speaker 1: away from that sort of risk. On the investment side,
Speaker 1: you do see firms like Jupiter, for instance, they came
Speaker 1: back during that share offering that was subsequently withdrawn. So
Speaker 1: there is still appetite among some of these UK institutions
Speaker 1: to invest in some of these securities. When it comes
Speaker 1: to these other entities that are incorporated in the city,
Speaker 1: Joe Johnson stepped down as director of this firm called
Speaker 1: Laura Capital. Not much as known about this firm. It's
Speaker 1: it builds itself as a full service investment bank. It
Speaker 1: has raised funds for several Indian companies. It says that
Speaker 1: it has offices in New York, Singapore, many other locations
Speaker 1: around the world. And you have other personages attached to this,
Speaker 1: including Lord Magna Magna Desai, who is an Indian born
Speaker 1: academic and a former Labor Party politician. He is also
Speaker 1: a director of a Laura So there's a lot more
Speaker 1: connections in time that will surface about who Laura Capital
Speaker 1: is and what exactly the connection is for the entity
Speaker 1: with other Adani companies. Thank you both so much. Thank
Speaker 1: you thanks for listening to this week's in the City
Speaker 1: will be back next week, but in the meantime, if
Speaker 1: you like our show, please head on over to Apple
Speaker 1: Podcasts or wherever you listen to podcasts and rate, review,
Speaker 1: and subscribe. This episode was hosted by me David Merritt's
Speaker 1: me fran sin Laqua, and it was produced by Summersodi.
Speaker 1: Additional editing by Blake Maples and special thanks to Shooty
Speaker 1: Wren and Shree. Video back to Batslam