Adani Group shares all leapt to day. Adani Total Gas (NSE: ATGL) was up 20% for example, others followed. Adani Enterprises up 10%, Adani Ports 6%. The news was from the Supreme Court and is being taken to mean that Hindenburg was entirely wrong in its short selling report. Which, we think, is not quite what it does mean.
The news from the Supreme Court: “Shares of Adani Group stocks surge as SC concludes hearings on Adani-Hindenburg matter and Sebi states it doesn't need more time for investigation. Adani Group market value surged by over $15 billion with group stocks rallying up to 20 percent on November 28 after the Supreme Court reserved its order to probe the companies based on a US short-seller's allegations of accounting fraud and stock manipulation.”
That the SC says no further action by the Indian authorities is necessary is how we read that. OK, happy enough to accept that as the statement assuming that’s what it is saying. But that doesn’t, in fact, solve the base point. For all it does is state that there’s no legal reason, known as yet, to investigate into Adani further. Which isn;t, in fact, a refutation of the Hindenburg claims.
Adani Total Gas share price from Google Finance
Recall what those allegations were about Adani: “Think this through in two different ways. One is that Hindenburg is right, as are the papers here. There’s been a lot of money borrowed - probably from within the group - to buy shares in parts of the group. This creates a pyramid of paper and as soon as those loans have to be called in then the pyramid collapses. The important point here is that those loans, those purchases, must still be outstanding for this to be true. The second is that, well, OK, some stuff happened. That’s what the papers have found. Perhaps there was some support of stock prices. Maybe it was all a method of getting money out of India, thus out of the tax net, to then invest back into India tax free. This is not, after all, entirely unknown. This might mean that there are stock exchange inquiries to answer, tax questions to answer. But what if the system has already been unwound? At that point the danger to the basic solvency of the Adani companies is gone and past.”
Another way to put this about Adani Ports, Adani Enterprises. Even is, as the SC states, there’s nothing to investigate further in legal terms, is it still true that all of the finances of the Adani Group are what we’d want to see in an investment? That’s a much more difficult point and one that we think is still open.
