The man who downloaded the entire Mauritius corporate registry

Nathan Anderson. It may not be a popular name on Tik Tok but his New York-headquartered short-selling research firm Hindenburg has just had a bearish take on India’s Adani group, setting off a firestorm in Indian capital markets, prompting a $50 billion sell-off in equities.

Since Nathan Anderson started Hindenburg as a standalone research firm in December 2017, the firm has put out notes on 45 companies, according to India online media, Mint.

Three-quarters (75%) of 45 investment calls (34 instances) by Hindenburg in the last 60 months have helped its investor-partners profit. Significantly, short sellers won big (target stock down more than 50%) at least 29 out of the total 34 times. Only four stocks have surged more than 50% since Hindenburg put out a note.

Firms such as Hindenburg typically shares its research with a small pool of investors ahead of the public release, allowing them to take short positions and profit once the report is released. Such firms make a commission off the profits its investor-partners make—it’s akin to a subscription fee. But it’s a high-risk gambit. If the stock moves up instead, investors can get caught in what is known as a short squeeze.

In January 2022, a 6,500-word profile piece of Nathan Anderson was featured in the New York Magazine. The piece carried the following paragraph.

Mauritius Corporate Registry

“ … In recent months, he has kept me abreast of Hindenburg’s work on a forensic project involving an overseas conglomerate. “We just downloaded the entire Mauritius corporate registry,” he told me in late November. “It’s a pretty extensive web.” He was still figuring out how he would be able to profit from the investigation’s findings, whenever it ultimately came to completion.”

That unnamed conglomerate, it now turns out, was Adani Group, whose founder Gautam Adani was, until the start of last week, the world’s third-richest businessman.

On 25 January 2023, Anderson’s research firm Hindenburg released a devastating report, titled “How The World’s 3rd Richest Man is Pulling The Largest Con in Corporate History”.

Over two trading days (25 and 27 January), the 10 listed entities owned by Adani lost between 5% and 25%.

The group lost almost $11 billion of its market value after the research was made public. It is now considering legal action against New York’s Hindenburg Research.

Adani Group is one of India’s biggest companies, and has operations in a wide range of industries including commodities trading, airports, utilities and renewable energy. It is led by Indian billionaire Mr Adani who is the world’s third richest man, according to Forbes magazine.

“I can confirm that, yes, when I started writing my article about Hindenburg (in approximately September 2021), he told me that they were working on an investigation of Adani, which he said at the time would be a long-term project,” Andrew Rice, the author of the piece, was cited as telling Mint.

“He (Nathan Anderson) mentioned that they had downloaded the entire Mauritius corporate registry as part of their investigative process and were in the midst of trying to figure out Adani’s web of corporate relationships. He kept me updated on the progress of the investigation throughout my reporting process. I had hoped that his report would appear in time to be included in my article, but at the time he said he had no idea when (or if) it would be complete.”

Rice said he couldn’t say what might have motivated the timing of the report’s release. “I can’t comment on why the report appeared at this moment, because I don’t know, but I can definitively confirm Mr. Anderson was talking about the investigation in progress roughly 15-16 months ago”.

But many investors conclude that the timing of the report—released less than 48 hours before the group’s flagship firm, Adani Enterprises, was to kick off its $2.4 billion secondary sale of shares on Friday—leaves it open to debate if it was done to derail what is billed as the country’s largest follow-on-public sale of shares.

This was because Hindenburg had also decided to profit from its two-year research.

“After extensive research, we have taken a short position in Adani Group companies through US-traded bonds and non-Indian-traded derivative instruments,” Hindenburg said in its note.

Malicious and fabricated

Since Hindenburg research first tweeted about its report on Adani, on 25 January, almost a million people saw the tweet in the first five days.

But unlike most short-sellers deciding to trade into the equity of a stock, Hindenburg has taken a short position in bonds raised by Adani and that are available for trading in the US and other non-Indian-traded derivative instruments.

US dollar bonds and Rupee Bonds accounted for 37% of the $24 billion debt of the five listed entities, including Adani Enterprises, Adani Ports, Adani Power, Adani Green and Adani Transmission, according to a CLSA note, dated 26 January.

Adani group has called Hindenburg’s allegations malicious and fabricated, and published a detailed rebuttal of its charges Sunday night.

The Financial Express reported that a number of Mauritius-based funds, which are currently classified as the company’s public shareholders, may participate in the $24 billion follow-on offering (FPO) of Adani Enterprises.

The Adani companies have a number of Mauritius-based funds which have invested or continue to invest in them. These include Albula Investment Fund, APMS Investment Fund, Elara India Opportunities Fund, LTS Investment Fund and Vespera Fund. All of these funds, except LTS Investment, have reduced the number of shares held in the company in the past year, FE said.

Sources: Mint, Financial Express