Hindenburg Short Adani Group of Companies

[cogitator8]

What you’ll think about this short idea from Hindenburg Research ?

 

[Dinar]

Let's just say I do not understand how Mr Adani made his $100bn+

[gfp]

I would also be interested in a discussion of how this may effect Fairfax India (because that is what I actually own).  One the one hand, it seems like it would lower valuations for things like Adani's airports, which are often used as 'comps' for BIAL - this would certainly hurt the valuation Anchorage is awarded in any IPO.  Also, Fairfax India is also using Mauritius for some part of their business structure that I don't pretend to understand - which was one of the criticisms of Adani entities if I understand correctly (likely I don't).

 

On the other hand, it could help Fairfax India's chances in winning bids for assets that Adani group companies may have also been bidding for.  And if government entities  like the Life Insurance company are already very exposed to Adani controlled entities there is a value to diversifying some with Fairfax.

 

There is also the possibility that even though everyone seemed to agree the stuff was highly overvalued and lots of people involved were crooks - the attention and results of the attention could mark a change in the cycle.

[ICUMD]

A good opinion piece on the Hindenburg report and Adani.

 

https://www.deccanherald.com/opinion/what-really-worries-indians-about-adani-s-empire-1185035.html

 

In summary, Adani may be India's vehicle to fast tracking infrastructure development.  There are lots of examples of high leverage,  unprofitable companies promoting their stock prices to achieve their agenda.   

 

Could they collapse?  Absolutely.   

But they likely have some very strong backers in government and business. 

 

 

 

[gfp]

Thanks for posting that.  It makes a lot of sense to me.  My experience speaking with Indian friends about this is the sentiment from that article, "for Indian people, this isn't news."

[Munger_Disciple]

I found this part of the op-ed concerning for Fairfax India: the sort of regulatory, legal and administrative reforms that would reduce political risk are off the table.

 

The author says that public sector is too incompetent, and no one else (other than Adani) in the private sector will step up because of risks in India. Doesn't seem like a great set up for Prem's investments in India if you agree with the op-ed.
 

I also find it strange that the company is attacking the short seller. If it is really strong as it would like investors to believe, who cares if someone wants to short their stock or bonds? You only care if you need continuous access to capital markets for funding your projects. 

Buffett said at one the annual meetings that he didn't mind or care if people are short Berkshire stock. He also said IIRC that the very process of selling short creates automatic buyers (short covering) at a later date. 

 

Edited January 27, 2023 by Munger_Disciple

[giulio]

Mohnish Pabrai highlighted multiple times that the risk of fraud in India is extremely high.

You need to be there, have connections, meet people, know how things work (i.e., customs and culture, not bribes!).

Fairfax has been investing in India for a long time.

 

I believe this is a big advantage for Fairfax.

 

14 minutes ago, Munger_Disciple said:

no one else (other than Adani) in the private sector will step up because of risks in India

Don't you think Prem already did so? He is a great sponsor of India and Modi, and said he wants to invest $7B more in the not-too-distant future.

 

Maybe Fairfax has better chances now. Maybe it will look like a more reliable partners to others.

I'm optimistic on this front.

[Spekulatius]

1 hour ago, giulio said:

Mohnish Pabrai highlighted multiple times that the risk of fraud in India is extremely high.

You need to be there, have connections, meet people, know how things work (i.e., customs and culture, not bribes!).

Fairfax has been investing in India for a long time.

 

I believe this is a big advantage for Fairfax.

 

Don't you think Prem already did so? He is a great sponsor of India and Modi, and said he wants to invest $7B more in the not-too-distant future.

 

Maybe Fairfax has better chances now. Maybe it will look like a more reliable partners to others.

I'm optimistic on this front.

The real problem with Adani is that the Indian government / Modi is likely a participant in this fraud (if that’s what it is). Modi strikes me as someone who is an enigma for me, with stuff like this:

https://time.com/6249393/the-modi-question-documentary-bbc-india-controversy/
 

If Adani is a fraud, then maybe the Indian economy is a fraud too of sorts.

[rohitc99]

5 minutes ago, Spekulatius said:

The real problem with Adani is that the Indian government / Modi is likely a participant in this fraud (if that’s what it is). Modi strikes me as someone who is an enigma for me, with stuff like this:

https://time.com/6249393/the-modi-question-documentary-bbc-india-controversy/
 

If Adani is a fraud, then maybe the Indian economy is a fraud too of sorts.

thats quite a leap of faith. Did enron or FTX make US economy a fraud. Is govt corruption only in the developing countries ? what is lobbying and regulatory capture ?

 

There is fraud in India and all kinds of regulatory capture like any other country. But 95% of businesses are legit and creating value which is no different from the US

[rohitc99]

3 hours ago, gfp said:

Thanks for posting that.  It makes a lot of sense to me.  My experience speaking with Indian friends about this is the sentiment from that article, "for Indian people, this isn't news."

absolutely and this has been the case for a long time. Only names change. And inspite of that the country continues to do fine and per capita income continues to rise

[Spekulatius]

7 minutes ago, rohitc99 said:

thats quite a leap of faith. Did enron or FTX make US economy a fraud. Is govt corruption only in the developing countries ? what is lobbying and regulatory capture ?

 

There is fraud in India and all kinds of regulatory capture like any other country. But 95% of businesses are legit and creating value which is no different from the US

Enron wasn’t an isolated case. There were a bunch of independent power producer that went bankrupt with Enron - Calpine, Mirant and other got severely damaged like El Paso and a few others. Then we had Worldcom, Global Crossing in telecom and many others. The US had a severe recession then. The classical cockroach syndrome - a  cockroach is never alone, especially when the government is deeply involved.

 

That does not mean that the entire economy is a fraud, just the part that is build on easy credit and with high debt and possibly government involvement.

[valueseek]

Just my couple of cents to this.
- Adani Group’s great rise in stock price has been an enigma to most reasonably verse stock market investors in India.

- From Buffett’s point of view, analyzing this is in the too hard pile.

- the news itself from Hindenberg doesnt come as big surprise to many. I used to read the exact details of most of these short reports a few years back but have doing that in detail. So maybe there are a few points in there that are outright fraudulent, some questionable, some maybe cultural issues, etc. All I know seeing financial commentators and market participants over the past several years is that maybe 70%+ would not have read the report and seen the headlines itself.

- foe Adani it has been well known in media about his links to the government. For one to get big infra projects and do well that is required in India. Its just how it has been for decades. Thats why much did not get done in previous decades. This govt. has tried to change it and maybe they have picked Adani as their goto guy.

- this report does not imply the whole or majority of country is a fraud. But things are donw differently in emerging markets. That is the starting point. There is more instances opportunity of mishandling public money than in developed markets, teh promoters mighg indulge in some self dealing, etc. May be a certain double digit percentage of the total listed companies may be like that.

-disclaimer: I have not read the report and dont intend in the next few days. So some rambling may be misplaced

Thanks

 

[changegonnacome]

On 1/27/2023 at 12:33 PM, gfp said:

Also, Fairfax India is also using Mauritius

 

You use Mauritius, a 0% tax haven, to locate, book and report FAKE profits at subsidiaries for example............last thing you wanna do with fake profits is report them 'on-shore' where you have to pay very REAL tax on fake profits....kind of defeats the purpose.

 

You also potentially use Mauritius via a kind of goodwill stuffing M&A exercise............where you acquire companies to potentially get rid of supposed cash you should have but dont....this is especially important when auditors come to check cash balances you say might have on revenues/profits you told people you had..........so you pay high (but ultimately fake) prices for external acquisition companies and turn fake cash into goodwill on the balance sheet.....but in effect these are related party transactions but nobody knows that.........but again a bit like the above on the fake profit side......the acquired company owners upon acquisition has a fake capital gain problem if located on-shore.....therefore fake capital gains on acquisitions need to be located in a tax havens like Mauritius ...so you dont pay REAL capital gains on this nonsense sale/profit price. The acquiring company books the acquisition, gets to write down the fake cash at the bank and credits its all to goodwill on its balance sheet..... and then auditors come to check the money in the bank its correct, even if your revenues & profits are nonsense......and well goodwill is goodwill its an accounting concept, hard to check......if company XYZ was worth $100m, it was worth a $100m.....one rational unrelated party, paid another rational unrelated that amount....so that must be whats its worth and what happened.

 

Final thing called out in Hidenburg specifically in their report from what I can see is just opaque inside ownership of stock that skirts disclosure rules.

 

Of course lots of legitimate reasons to have an entity in Mauritius....which I'm sure Fairfax is doing.

 

 

Edited January 30, 2023 by changegonnacome

[Sweet]

Response:

https://hindenburgresearch.com/adani-response/

[Spekulatius]

Based on his response, Adani is screwed. Now they are appealing on national interest. LOL.

[changegonnacome]

16 hours ago, Spekulatius said:

Based on his response, Adani is screwed. Now they are appealing on national interest. LOL.

 

Patriotism is the last refuge of the scoundrel, as they say

[cofabmd]

„They say that patriotism is the last refuge to which a scoundrel clings/ steal a little and they throw you in jail STeal a lot and then they make you king.“ —  Bob Dylan

[Spekulatius]

I guess they are at the bury the corpses stage:

https://www.ft.com/content/5f9e844a-771f-4c65-beb2-ed2964bee6c9

[Haryana]

On 1/31/2023 at 6:44 AM, changegonnacome said:

 

Patriotism is the last refuge of the scoundrel, as they say

 

That is what a lot of people were saying about Warren Buffett when babbled on and on during his solo pandemic AGM. His stock was crashing and he sold all airlines at bottom.