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Sensemaker: Little big short

Sensemaker: Little big short

What just happened

Long stories short

  • Hundreds of thousands of teachers, firefighters and other public sector workers walked out in the UK’s biggest coordinated strike action in more than a decade.
  • An Iranian couple was sentenced to 10 years in jail for filming themselves dancing in public.
  • Australian authorities found the 6mm by 8mm radioactive capsule that went missing last month on a 1,400 km stretch of road. 

Little big short

One of India’s biggest industrial conglomerates completed a share sale yesterday with the help of a $400 million investment by the UAE, despite a collapse in its market value caused by claims of money laundering and fraud.

So what? The Adani-Hindenburg showdown is causing world markets to take a sceptical new look at the Modi economic miracle that’s supposed to be transforming India. 

The players. The claims against the Adani Group have been levelled by Hindenburg Research, the New York-based short seller mentioned here on Monday that likes to think of itself as David in a world of Goliaths. Hindenburg’s shorting of Adani isn’t as big as the Big Short that nearly crashed the global banking system in 2008, but it’s still big:

$76 billion and counting – decline in the Adani Group’s market cap since Hindenburg’s analysis of its inner workings dropped last week.

$40 billion and counting – decline in the net worth of its founder, Gautam Adani, who’s no longer Asia’s richest man.

The group’s share price has slumped by more than a third since 24 January. That has led a broader five-day slide on Indian markets. It’s also raised questions about

  • the role of short sellers;
  • the resilience (or otherwise) of some of India’s biggest companies; and
  • the thinking (or lack of it) behind investors’ decisions to ride to Adani’s rescue.

The hunter. The villain / hero of this piece is Nathan Anderson, Hindenburg’s founder, tracked down recently by Tortoise, who says his business is to “identify and pop bubbles”. An Adani spokesman has called Anderson’s report a latter-day Amritsar Massacre – a neo-colonial atrocity – but Anderson says you can’t hide fraud behind nationalism and has invited the group to argue the substance of the case in court. 

A legal fight is likely. Meanwhile the evidence suggests Anderson is less neo-colonialist than equal-opportunity shorter with ice in his veins. Since naming Hindenburg after the doomed airship in 2017 he’s gone after an American EV battery maker, a Chinese crypto mining company and a geothermal power firm based in Nevada, among others. (He’s also offered $1 million to anyone who can find the capital reserves boasted of by Tether, the so-called stablecoin currency that is the subject of our Real Money podcast series.)

Of short sellers generally, Bloomberg’s Marc Rubinstein says they take high risks for limited rewards and serve a genuine purpose sniffing out fraud. 

The prey. The Adani Group runs ports, builds airports, operates fleets of trucks and aims to become India’s biggest green hydrogen producer. It has seven main subsidiaries with separate stock market listings and accounts for 7 per cent of all capital spending by India’s 500 biggest companies. Hindenburg’s report, two years in the making, says the group has been using shell companies in Mauritius to

  • disguise family members as disinterested shareholders;
  • pump up Adani Group share prices with high-frequency, low-volume trading;
  • borrow billions at unsafe debt-to-capital ratios;
  • use the debt to fund acquisition sprees;
  • launder proceeds and hide losses.

Gautam Adani, the group’s founder, rejects the report as an attack on India but many investors have been studying it carefully and offloading Adani stock as a result. Its share prices are continuing to fall despite yesterday’s rescue (see below), which augurs ill for Prime Minister Narendra Modi’s strategy of funnelling public money through favoured private sector players for breakneck – and much-needed – infrastructure development.

The saviours. This week’s test of faith in the Adani group was a $2.5 billion secondary share sale. In the end it was fully subscribed thanks to the Abu Dhabi Investment Authority, India’s state-backed Life Insurance Corporation, and others. But retail investors and India’s own banks and mutual funds wanted no part of it. Nor did Norway’s sovereign wealth fund or most UK-based asset managers.

Given Adani’s interest in hydrogen, Hindenburg’s take-down is looking almost preordained.


Exxon wins

America’s biggest oil company posted record profits of $55 billion for a year when war squeezed supply and drove up prices – and defended them as a reward for planning ahead and resisting groupthink. Exxon’s profits for 2022 were more than double those for 2021. The White House called them outrageous, saying the company could and should have done more to boost domestic supply when Americans were being gouged at the pump. It’s clear Biden would press for a UK-style windfall tax if he stood a chance of winning congressional approval. He doesn’t, but Exxon’s Darren Woods came out swinging just in case, saying he did in fact boost investment in shale oil and gas when investors were pushing for a switch to renewables. Chevron, no more apologetic, posted profits of $36 billion last week. 


Back from Mars?

Not yet. Nasa would like people to pay attention to its Perseverance rover’s success in filling 17 titanium tubes with dust that might contain evidence of ancient life on the red planet. The tubes will be left at a depot in the Jezero Crater, thought once to have been full of water. Hard evidence of life off Earth would transform humanity’s sense of itself, but even if it exists it’s a long way off and the part of this story Nasa is not telling in detail is how the samples will get back, because it doesn’t know. Lockheed Martin has been tasked with building a Mars Ascent Vehicle, but work didn’t start on it until last year and it won’t be ready until 2028 at best. ETA Earth: 2033.

The 100-year life health, education AND GOVERNMENT

Learning loss
Three years on from the start of the Covid pandemic, fears of the long-term effect of lockdowns on children’s learning are being vindicated. A global study analysing research from fifteen high and middle-income countries has quantified that learning deficit and found that on average children lost a third of a school year’s worth of knowledge and skills. More significantly, even as schools have reopened, that learning loss has not been made good. Thomas Kane, from Harvard’s Center for Education Policy Research, tells the NYT: “learning loss will be the longest-lasting and most inequitable legacy of the pandemic” unless immediate and intensive plans are put in place to rectify the disparity. Separately, as many as 23,000 schools could be impacted in today’s school strikes across England and Wales as more than 100,000 teachers walk out over pay. 

Our planet CLIMATE AND geopolitics

Protocol progress
Britain and Brussels may be close to an agreement to rewrite the Northern Ireland Protocol that has infuriated Brexiteers since it was signed. A new version of the protocol would smooth the flow of goods into the province with a system based on UK proposals for green and red freight lanes, and would lower Conservative ministers’ blood pressure by referring disputes to the European Court of Justice only at Britain’s request, the Times reports. Publicly, Downing Street is denying a deal is in prospect. Privately, the paper’s sources say real progress – and substantive concessions on the EU side – have been made. Key players yet to be convinced appear to include Northern Ireland’s unionists and… Rishi Sunak.


Opportunity cost

Yesterday we noted the IMF’s downgraded forecast for the UK’s 2023 economic performance. Today, in a spirit of openness about what ails the country, the better to fix it, we note the assessment by two Bloomberg economists that Brexit is costing £100 billion a year. Ana Andrade and Dan Hanson reckon the UK economy is 4 per cent smaller three years after leaving the single market than it would have been had it stayed in, with particularly negative Brexit impacts on business investment and the labour market. It’s also Walkout Wednesday – the closest thing to a general strike in recent history – and the week in which a senior US general told the UK’s defence secretary the British Army was no longer regarded by the Pentagon as a top-level fighting force. Things can only get better. 

Thanks for reading. Please tell your friends to sign up, send us ideas and let us know what you think. Email sensemaker@tortoisemedia.com.

Giles Whittell

Additional reporting by Phoebe Davis.

Photographs Getty Images, NASA/JPL-Caltech/MSSS, Bryan Anselm/The New York Times/Redux/eyevine

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