The Hindenburg Effect
By A Special Correspondent
First publised on 2023-02-06 09:44:56
About the Author
A report in The Economic Times says that the Adani group is moving to pre-pay its loans against shares at the shareholder level and seeks to liquidate this accounting head in 30-45 days to reassure the market that the group is capable of repaying its loan commitments. The quantum of such loans is in the range of Rs 7000-8000cr and they have mostly been availed through foreign banks like Credit Suisse and JP Morgan and Indian NBFC J M Financial.
Although this is a move in the right direction, it will not be enough to soothe market sentiments entirely. Along with the capacity to repay loans, both of the promoters and the group companies, the questions of accounting malpractices, corporate governance and rigging of share prices through related entities need to be answered satisfactorily by the group for it to regain some of the ground it has lost in the markets due to the Hindenburg report disclosures.
Although Hinderburg is currently under investigation by the US Justice Department, along with its associate Nate Anderson and several other activist short-sellers who have been targeting Chinese firms for many years and who are now after Indian firms, that news will provide little solace to Gautam Adani. Writing in The Times of India today, Arvind Panagariya has good advice for Indian firms who will now be increasingly targeted by US-based short sellers - superior standards of transparency and corporate governance. There is no substitute for being honest - both with the disclosures and with the numbers.
With Indian firms increasingly borrowing in the global market, any laxity in disclosure norms or alleged manipulation of stock prices will not make funds available to them and will also render them vulnerable to Hindenburg-type attacks. The regulators in India must step up their vigil and ask pointed questions to company managements and take other corrective measures if share prices move beyond acceptable limits as defined by normal parameters or the price earnings ratio of a firm jumps up unreasonably in a short period of time . The Adani fiasco must result in Indian firms getting their act together so that they are not targeted by US-based short sellers.
