Hindenburg wanted to make more but Kingdon had cold feet

MYSTERY POST: Also a teeny bit of a conflict of interest

Cold feet.

You’re reading a MYSTERY POST! Some stuff from behind the scenes which couldn’t make it into the regular posts but is interesting nevertheless. Here’s more about MYSTERY POSTS.

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We know the story by now. Last year Hindenburg Research published a big report accusing Adani of fraud. Thanks to the report, Adani companies’ share prices fell by anywhere from 40–80% and people were uncomfortable. Last week, I wrote about how SEBI preferred investigating Hindenburg instead of its accusations against Adani.

But in Hindenburg’s original report, it had one more accusation. Against SEBI! From its report:

Our source stressed that Mauritius-based funds were a vehicle to “cut the trails” and conceal the identity of an investor bringing cash from overseas into the Indian market.

He alleged – based on his own track-record of dealing with regulators and being investigated by them – that SEBI is aware that conglomerates like the Adani Group are using Mauritius funds to flout laws on maximum stock ownership, and that SEBI participates in the schemes due to bribes.

“I won´t say they [SEBI] put a blind eye. They know about it. They personally make their money [from bribes] and then they would like to ignore it. A blind eye is where you´re definitely not touching and not disturbing it at all. So it´s not the blind eye. The whole system is very much working hand in glove. People know about it. SEBI knows about it.”

Hindenburg isn’t saying it directly, but it’s quoting someone who is claiming that SEBI is being bribed to ignore the Adani stuff. Of course, there is no evidence for it in the report, just an anonymous quote which doesn’t mean a lot by itself.

SEBI is supposed to be investigating Adani on the basis of a report where it itself is being accused of fraud. No wonder it’s not happy.

There’s money but not for Hindenburg

One of the striking discoveries from SEBI’s investigation into Hindenburg was that Hindenburg only made about $5.5 million¹ from its Adani trades, even though the companies’ market cap had fallen by more than $153 billion! That’s 0.003%… ²

Hindenburg isn’t going to be keen on publishing a short report about an Indian company very soon. Lots of trolling and not enough financial reward to make it worth it.

Hindenburg was always going to make less than it would have on a comparable company in, say, the US. But it looks like its partnership with Kingdon Capital didn’t play out as it would’ve liked.