One can refer to the Hindenburg saga as scandal, scam, non-story, conspiracy against India or something else. Some of that will depend on the perspective one has on this government and that is understandable. There are two other aspects to it that one cannot deny or will find it hard to deny at least, based on the evidence before us. The first is the reaction of the markets. The second aspect is how the Indian State reacted, or did not react.
Let us look at the first reaction: The reality is that those people who have real money at stake in this issue have voted, and they have voted in favour of Hindenburg’s allegations. Readers may not know that the exposure of India’s mutual funds to the Adani group was always limited, with almost nobody willing to invest in it. As the Hindenburg report puts it: “despite Adani listed companies featuring in domestic and overseas indices, no active local fund owns Adani Green, Adani Enterprises, Adani Total Gas or Adani Transmission above 1% of equity, according to shareholding disclosures.”
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The question is why because it is truly puzzling. The second richest man of the world is (rather was till recently) Indian, having written a rags-to-riches story rivalling that of the great Dhirubhai Ambani. Surely this was something for wealth managers to be proud of. So then why did the men and women entrusted by ordinary Indians to invest their savings not put their money behind him? Second, his business was that of infrastructure: ports, airports, energy, mining and so on. Meaning that he was doing ‘development’ in the way this government understands the term. There were and are real assets on the ground behind the business. This is not a business of diamonds or things that few understand. It was assumed to be a solid thing. Lastly, Mr Adani is famously close to our Prime Minister. It is in the latter’s reign that he has risen to the place he has. Whichever side of the fence one is on, it cannot be denied that the protection of a strong leader assured this business that it would not face the sort of harassment that the rest of us are subject to. All in all there was nothing stopping the Adani group from conquest assuming that it did the job well. And yet the market did not buy the story.
Now let us look at the second reaction, or non-reaction, by the State. By State I mean the collective: the government, its agencies, the judiciary, the regulatory system. The only significant action came not from any of these but as we have noted, from the market: the money bolted. The traders, punters and brokers, presumably many if not most from the same community as Mr Adani (and me) and highly nationalistic as we know they can be, saw something in the Hindenburg report that the Enforcement Directorate, the CBI and other Central bodies did not (For a moment let us imagine that they are actually independent and not ordered around by the PMO and Amit Shah).
If one is on the side of the government and Adani, or more specifically if one is on the side of the Prime Minister, one can say that they did not act because there is nothing to see here. That the markets are overreacting, or reacting wrongly and that the report is what the Americans call a ‘nothingburger’. That is fine because it is an opinion. I can say something and you can say another. The issue is whether the State and its bodies can do the same and the answer to that is no and we will come to that. The full story reveals something about New India that is troubling.
One of the defences that the Adani group’s Indian flag-waving, Australian citizen CFO, put forward was that all the allegations are old (‘stale’ in his words). That is in fact the most damning aspect of the Hindenburg report. If all these things have been in the public domain, and they have, and if the regulatory agencies were looking into them, as they were, Hindenburg says that “offshore shells and funds tied to the Adani group comprise many of the largest ‘public’ (i.e., non-promoter) holders of Adani stock, an issue that would subject the Adani companies to delisting, were Indian securities regulator SEBI’s rules enforced.” Meaning that SEBI is not doing its job and the government appears to be fine with it. Hindenburg adds that “Right to Information (RTI) requests we filed with SEBI confirm that the offshore funds are the subjects of an ongoing investigation, more than a year-and-a-half after concerns were initially raised by media and members of parliament.”
Readers may be familiar with the Sherlock Holmes story about the “dog that didn’t bark.” It’s about the disappearance of an expensive racehorse and the murder of the trainer. Holmes in his investigation concludes that this was an inside job because nobody heard the watchdog that was present bark. In our mystery the watchdog agencies are silent but it is the market that has barked and has not stopped barking. Till such time as it continues to do so, this headache will not go away. There are some things that the government can wish away or use brute force to quell. Alas, this is not one of those things. And for this reason, the scandal, story, scam or nothingburger will remain with us, till it is addressed and fixed.
