Feb 1 (Reuters) – When Hindenburg Research revealed its short position in Adani Group last week, some U.S. investors said Indian securities rules would not allow foreigners to bet on Indian companies. He said he is interested in the actual mechanics of that deal because it makes it difficult.
Hindenburg’s bet has paid off so far. That claim, which the Indian conglomerate denies, wiped out more than $80 billion in market value from seven publicly traded companies and knocked out billionaire Gautam Adani as the world’s third richest man. On Wednesday, his $2.5 billion stake sale by one of his companies, Adani Enterprises ADEL.NS, was called off.
Short-sellers say they hold positions to benefit from the decline in the value of Adani Group’s stocks and bonds. But it did not disclose much else about the size of the bets or the types of derivatives and reference securities used.
“I wanted to sell myself short, but I couldn’t find a way to do it with a prime broker,” said Andrew Left, founder of Citron Research, referring to Adani Enterprises and others. bottom.
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Hindenburg declined to comment to Reuters on the method used to place the bet against Adani.The Adani Group and the stock market regulator, the Securities and Exchange Board of India (SEBI), did not respond to requests for comment. rice field.
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Typically, an investor who wants to bet that a company’s share price will fall borrows and sells shares in the market in hopes of buying them back at a lower price, a practice known as short selling.
Short sellers like Hindenburg prefer to quietly build their positions before publishing a paper on the company to maximize profits. They need to be careful because the mere rumor that they are in stock can cause the stock to fall.
However, in India, securities rules make it difficult to build positions quietly. Institutional investors must disclose short positions in advance, and foreign investors have other restrictions and registration requirements.
For the Adani group, the issue is more complicated. Shareholdings are concentrated in the hands of the Adani family and their shares are not traded on foreign exchanges.
Hindenburg founder Nathan Anderson was even bashful with his peers about his bet on Adani. Left and Carson Bullock, founders of Muddy Waters Research and other prominent short sellers, told Reuters they had a one-word response to Anderson’s congratulatory message: “Thank you.” said there was.
Analysts say cracking the code on how Hindenburg made the deal could lead to more short-sellers taking positions against Indian companies, but that’s rare.
Amit Tandon, Managing Director of Institutional Investor Advisory Services (IiAS), a proxy and governance firm in India, said:
Reuters was unable to learn the details of Hindenburg’s deal. But bankers familiar with trading Indian securities said the more profitable part of the short bet was likely to be the derivative trade it made.
A portion of Adani’s US dollar corporate bonds, , fell 15-20 cents in the days after the report was released.
But there are limits. The bonds outstanding totaled only billions of dollars and could not be borrowed easily, said one debt banker.
A more profitable method, according to these bankers, is to place bets via participating notes, or P-notes, which are less regulated offshore derivatives based on shares of Indian companies.
The entity creating the P-note is registered with the Stock Market Regulator of India, but anyone can invest in it without registering directly with SEBI. Investors can also use intermediaries to mask their positions.
In addition, the market for P-notes is large. Billions of dollars worth of he P-notes are traded each year, according to regulatory data, allowing for big bets, the banker said.
(This story has been refiled to add the deleted word “to” in the first paragraph)
Reporting by Shankar Ramakrishnan, Svea Herbst-Bayliss, Carolina Mandl. Additional reporting by his Jayshree Pyasi in Mumbai and Anshuman Daga in Singapore.Edited by Paritosh Bansal and Anna Driver
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