The world was aghast when the airship Hindenburg, a silvery behemoth larger than three football fields, imploded in a ball of fire on May 6, 1937, while landing at Lakehurst Airfield, New Jersey. It was never quite clear what caused the disaster, a hydrogen leak, sabotage, or static electricity igniting its combustible, aluminium-coated and iron-oxide lined cotton skin.
For Nathan Anderson, it is the fitting symbol of avoidable, man-made disasters he strives to examine. Anderson is the founder of Hindenburg Research LLC, a corporate investigator and short-seller most recently reporting on the machinations of Gautam Adani, Indian oligarch and the world’s third richest person – until Hindenburg’s more than 100 pages long accusations were published on January 24.
Thereafter Adani’s wealth started to implode, well, like the fabled Hindenburg: only a month later Adani was 65 per cent poorer.
Attempts to shore up the company with a new share offering, friendly supported by Abu Dhabi’s IHC Investment Company, have failed. Indian regulators, habitually blind to the machinations of Prime Minister Narendra Modi’s close friend and ally for decades, have for once threatened to intensify investigations. Protesters take to the streets, and nationalist Indian media see in Anderson’s painstakingly collected fact sheet a neocolonialist plot.
The implications for India’s industrial policies aside, which almost exclusively relies on the self-serving and wheels-greasing promises of its industrial elites thereby operating with almost complete legal impunity in an unsavoury nexus of money and politics: is it right to first bet on the downfall of a company and then publish a litany of alleged corporate misdeeds which then, amplified by the web’s almost isochronal information exchange, cause a predictable run on the company’s shares? Profits seem almost guaranteed, don’t they?
Credit Suisse, on the receiving end of a damaging Tweet last fall, might feel sympathetic with Adani and his gullible creditors and investors. Hindenburg’s revelations reverberated globally, without much of a time lag.
Adani Group’s (AG) seven publicly listed companies are included in the MSCI India index. Investors in India-focused ETFs are by definition also invested in AG. This means that pension funds from Canada to Australia suffered.
As the dupable retail investor I am, I was once myself damaged by Hindenburg. I had invested in Nikola, a truck making start-up which went public in 2020 with a lot of fanfare. It doubled its share price within a week of its IPO to soon eclipse Ford and GM with a market capitalisation of $29 billion. Nikola’s founder, a Trevor Milton, was true to the American credo “fake it until you make it”.
He promised to roll out hydrogen gas stations with the help of BP, to build pickup cars with the help of GM and roll out fuel-cell-driven heavy trucks with help of the likes of Iveco/CNH and Bosch. It was quite clear that Milton was a snake-oil seller.
But he had powerful supporters, like the former vice-chairman of General Motors Steve Girsky who contrived Nikola’s ‘SPEC’ IPO and Mary Barra, CEO of General Motors who continued to vocally support Nikola even when things started to go downhill.
Nikola’s share price peaked at $65 in June 2020. In July, when I went in, it had already fallen by half. In September, Hindenburg published its report which was devastating and hilarious in equal measure.
The free press in India is an endangered species, making Malta look civilised- Andreas Weitzer
It revealed that the glistening trucks presented in polished YouTube videos had actually no engines and were just rolling downhill, pulled by gravity alone. Shares dropped, first 50 per cent to then steady about 10 per cent lower from $34.
CEO Barra was still steadfast in her loyalty, despite fraud allegations raised against Milton by the SEC. Until she suddenly dropped out of the venture, as had BP two months earlier. The reputational damage got too expensive to continue. Milton was convicted in two cases of security fraud and in one case of criminal fraud.
The judge attested Trevor Milton to “lying about nearly all aspects of the business”. Today, Nikola’s shares trade for $1.21 – a loss of 98.15 per cent from the peak, which translates to 95.86 per cent for myself. Once a stock is worthless, it doesn’t matter how low one bought it in the first place! Hindenburg was right, after all.
What Hindenburg does to devastating effect is a moral and legal high-wire act. To denounce Anderson is tempting, even when you are not on the receiving end of his attacks. Yet, charging by his CV, he is a morally-driven man, working for years as an ambulance driver and then earning his spurs as a self-employed whistleblower for US market authorities before he set up his 12-person-enterprise Hindenburg in 2018.
His paper on AG took two years of research, starting off with a startling observation: The shares of Adani’s companies had in the course of the last three years gained in average more than 800 per cent. Gautam Adani’s wealth had doubled, making his family business a cornerstone of Indian industry.
Adani Enterprises for instance: +1,398 per cent; Adani Transmission: +729 per cent; Adani Total Gas: +2,121 per cent; Adani Green Energy: +908 per cent; and so on. Their price-earnings-multiples, in average an astounding 248 times, made most tech companies look undervalued. Even Adani Ports, a steady, predictable low-margin business, had a P/E of 35 – more than Apple or Microsoft. These companies were, according to Anderson’s analysis, overvalued by at least 85 per cent.
How was this possible? Hindenburg microscoped many hundred Adani-related offshore companies in Mauritius, Cyprus, the Seychelles, and the UAE, all of them handled by a small group of family and friends, audited by a tiny bookkeeper in Mumbai and commissioning the services of a notorious – and banned –stock market manipulator as well as the help of a fugitive genius accountant.
Hindenburg alleges that there’s not much of a free float of Adani’s listed companies and that money, credit and shares are moved within them to beautify balance sheets, increase and hide leverage, and to pump up share prices. According to a witness statement received by Hindenburg, Adani stock “can have any price you want”.
Adani “has engaged in brazen stock manipulation and accounting fraud over decades” Anderson states, “pulling off the largest con in corporate history”. If Hindenburg cannot back up its claims with hard facts, it will lose money with its short bets, risks being sued to death by Adani and family, and being convicted by the SEC of stock market fraud, leading almost certainly to jail terms for Anderson and his team. He better knows what he is doing.
What this means for India I can only speculate. Its industrial success story traded by our media will certainly suffer: as India’s market authorities like the SEBI have regularly turned a blind eye to the machinations of its oligarchs, they will have to come up with token scalps now to calm international investors.
The fact that critical stock analysts and journalists were regularly intimidated and jailed by Adani & Co will be spotlighted. The free press in India is an endangered species, making Malta look civilised: 1,668 Indian journalists have been murdered in the last 20 years.
Modi’s political acumen has suffered a blow. His concept of catapulting India past highly educated, wealthy China, without investing into domestic education, poverty alleviation and a fair rule book, will have to be re-examined.
Andreas Weitzer is an independent journalist based in Malta.
The purpose of this column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice, or advice on the buying and selling of financial products.
andreas.weitzer@timesofmalta.com