The Hindenburg Research report, which was published on January 24 this year, had benefitted 12 companies based in tax havens through short selling in the shares of the Adani Group companies, reported The Indian Express.
According to the preliminary investigation conducted by the Enforcement Directorate (ED), a dozen Foreign Institutional Investors (FIIs) and Foreign Portfolio Investors (FIPs) sold Adani Group shares 2-3 days before the publication of the Hindenburg Research report.
After the shakedown of the Indian markets, the said companies purchased the same shares at a lower price. ED informed the Securities and Exchange Board of India (SEBI) that out of the 12 entities, some of them were involved in short-selling shares for the first time (including a Mauritius-based company).
Citing sources, The Indian Express reported that 4 of the dozen companies are based in India. One of them is reportedly an Indian branch of a foreign bank. Four other entities are based in Mauritius and one each in Hong Kong, Cayman Islands, Ireland, London and France.
The Enforcement Directorate found that none of the 12 companies had disclosed the structure of their ownership to Indian income tax authorities. “For instance, one was incorporated in July 2020, and had no business activity till September 2021, and in a short period of six months from September 2021 to March 2022, claimed income of Rs 1,100 crore on a turnover of Rs 31,000 crore,” The Indian Express report said.
It further added, “Another global financial services group, which operates as a bank in India, earned just Rs 122 crore, but as an FII earned “whopping income of Rs 9,700 crore” without any income tax.”
Promoter of an Indian short seller was earlier under SEBI scrutiny
Besides, two of the ‘top short sellers’ were Indian companies, one registered in Mumbai and the other in New Delhi. Interestingly, the SEBI had earlier passed an order against the promoter of the Delhi-registered company for stock manipulation and misleading investors.
The parent company of Cayman Islands-based Foreign Institutional Investor, which benefitted from short-selling Adani Group shares, had earlier pled guilty to insider trading and coughed up a penalty of $1.8 billion in the United States.
According to the Enforcement Directorate, the 12 entities might not be the ‘end beneficiaries’ in short selling of the shares of the Indian conglomerate. The central agency is investigating whether they acted as brokers for other overseas-based ‘big players.’
Hindenburg Research report and the Indian market crash
On January 24 this year, a US-based short seller named Hindenburg Research published a 32,000-word report, accusing the Adani Group of stock manipulation and use of tax havens.
The Adani Group trashed the report as a ‘malicious combination of selective misinformation and stale, baseless and discredited allegations’. Later, it published a 413-page response and pointed out how the US-based investment research firm sought to benefit from its damning report.
So Adani has just released a 413 page statement in response to Hindenburg allegations pic.twitter.com/uV2U1KreT8
— Chandra R. Srikanth (@chandrarsrikant) January 29, 2023
“This is rife with conflict of interest and intended only to create a false market in securities to enable Hindenburg, an admitted short seller, to book massive financial gain through wrongful means at the cost of countless investors,” the Indian conglomerate had said back then.
Nonetheless, the Hindenburg Research report caused a temporary shakedown of the Adani group and wiped out $100 billion of wealth from the Indian stock market.
