Philippa Kaur

Naming a hedge fund is easy. Anodyne references to the natural world (peaks, stones, rivers or points) will usually do. Failing that, invoke ancient Greece. Christening a shock-and-awe short-selling outfit requires more creativity. Hindenburg Research, named after the doomed hydrogen-filled German airship, was founded by Nathan Anderson in 2017 to hunt for impending corporate disasters, and then hold a torch to them. The firm releases research reports on its website and typically profits when its targets’ shares plummet in value.Listen to this story. Enjoy more audio and podcasts on More

GAUTAM ADANI is no stranger to ambush. In 1998 the Indian tycoon was kidnapped and reportedly released for a multimillion-dollar ransom. In 2008 he was at the Taj Mahal Palace Hotel in Mumbai during a terrorist attack, and spent a night hiding in the basement. Now he faces an assault of a different kind—not on his person but on the conglomerate that bears his name. In the space of a week a staggering $92bn, or two-fifths, has been wiped from the market value of the Adani Group’s ten listed companies (see chart 1). The yields on some of those firms’ bonds at times spiked into distressed territory (see chart 2). Mr Adani’s personal fortune, the world’s third-biggest at the start of the year, has shrivelled by $50bn. A $2.5bn secondary share offering was abruptly pulled on February 1st. The rout raises questions about one of India’s mightiest business houses, the fate of its pharaonic ambitions in everything from clean energy to media—and about India’s tycoon-powered version of capitalism.The haemorrhage was caused by what looks, next to an industrial empire spanning ports, power stations, media and much else besides, like a peashooter. On January 24th Hindenburg Research, a small New York investment firm, published a report accusing the Adani Group of pulling “the largest con in corporate history”. Hindenburg, which had taken short positions on some internationally traded Adani bonds and derivatives, detailed allegations of stock manipulation and other financial mischief. The purpose, according to the short-seller, was to inflate the market value of Mr Adani’s listed companies. Within days the Adani Group issued a 413-page rebuttal, calling Hindenburg’s report “all lies”—and a “calculated attack” on India itself. The Adani Group said it had always been in “compliance with all laws”.This forceful response initially looked like enough to let Adani Enterprises, the group’s flagship listed entity, conclude its secondary share offering, which was due to price on February 1st. With Adani Enterprises’ existing shares trading below the offering’s issue price, retail investors showed tepid interest. Still, Adani Enterprises managed to line up anchor investors (among them the Life Insurance Corporation of India, or LIC, the State Bank of India, and some big American banks) and a handful of deep-pocketed backers who apparently did not mind paying over the odds. These included IHC, an Emirati fund with prior investments in Adani companies, which chipped in $400m, as well as, reportedly, several family offices of fellow Indian plutocrats.Then, on the afternoon of February 1st, Bloomberg reported that Credit Suisse, a bank, stopped accepting Adani firms’ bonds as collateral for margin loans to its private-banking clients. The share price of Adani Enterprises collapsed by nearly 30%. Those of other Adani firms also slid. Their bond prices, having clawed back earlier losses the day before, took another hammering. It was later that evening that the Adani Group cancelled the secondary offering, pointing to “unprecedented” market conditions. What comes next is uncertain. The conglomerate’s executives have been dispatched around the world to reassure nervy investors. An internal risk team first created to deal with the covid-19 shock, then deployed to tackle problems arising from supply-chain disruptions caused by the war in Ukraine, has been put on high alert. Spending plans are said to be funded for the next two or three years. In the statement calling off the share issue, Mr Adani said, “Our balance-sheet is very healthy with strong cashflows and secure assets, and we have an impeccable track record of servicing our debt.”The threat to the empire does not appear existential. Mr Adani is considered an able operator and his companies own many valuable assets. They run some of India’s biggest ports (plus a few in Australia, Israel and Sri Lanka), warehouse 30% of its grain, operate a fifth of its power-transmission lines, accommodate a quarter of its commercial air traffic, and produce perhaps a fifth of its cement. A Singaporean joint venture vies to be India’s largest food company. In the last financial year the group’s listed companies had total revenues of $25bn, equivalent to 0.7% of Indian GDP, and a net profit of $1.8bn. Their combined annual capital spending of around $5bn accounts for 7% of the total for India’s 500 biggest non-financial firms. In his statement, Mr Adani insisted that the decision to scrap the secondary offering “will not have any impact on our existing operations and future plans”. No rating agency has yet reappraised the group’s debt, which boasts an investment grade. Nor have Hindenburg’s allegations so far led compilers of global stockmarket indices to drop Adani firms from their benchmarks. One of the index-managers, FTSE Russell, has said it does not at this point intend to take action. Another, MSCI, is expected to weigh in soon. Yet it is hard to believe that Mr Adani’s grand nation-building designs will be unaffected. Between 2023 and 2027 his group was forecast to spend more than $50bn on investments. It is building a new airport near Mumbai, spending a total of $5bn on three seaports, and planning to construct a $5bn steel mill in partnership with POSCO, a South Korean conglomerate. Its envisioned projects in renewables and hydrogen were seen as the cornerstone of an effort, championed by India’s prime minister, Narendra Modi, to turn the country into a global clean-energy powerhouse. All this requires masses of capital, a slug of which was meant to come from the new share offering. If the yields on Adani bonds remain elevated and its share prices depressed, securing the necessary funds will prove difficult.Then there are the possible spillovers to the rest of India Inc. So far the knock-on effects on firms like LIC and State Bank of India have been painful but not life-threatening; their share prices declined by 8% and 5%, respectively on February 1st. LIC says that Adani shares make up less than 1% of its assets under management. Virtually no Indian mutual funds hold significant stakes in the group’s companies (a fact that Hindenburg cited in its report as evidence of the Indian market’s lack of confidence in them). State Bank of India, which is also a lender to the group, says it is not concerned about its loans to Adani companies, which are secured by cash-generating assets. CLSA, a broker, puts Indian lenders’ total exposure to the five biggest Adani firms at $24bn—a manageable 0.5% of all loans across the Indian banking sector.Foreign investors are not taking any chances. In the past week Indian stocks have underperformed other emerging markets (see chart 3). In just two days, Friday January 27th and Monday January 30th, global funds pulled a net $1.5bn from the Indian stockmarket. Compliance-obsessed Western multinationals may think twice before forging new partnerships with tycoons, in recent years their preferred route to the vast Indian market.As the week’s drama unfolded, Mr Adani was himself abroad, officially taking ownership of the port in Haifa he acquired in 2022 for $1.2bn—and unofficially doubtless trying to send a reassuring message to his foreign backers. “I promise you that in the years to come we will transform the skyline we see around us,” he told his Israeli audience on January 31st. He first has an awful lot of repair work to be getting on with at home. ■ More

Every so often a new technology captures the world’s imagination. The latest example, judging by the chatter in Silicon Valley, as well as on Wall Street and in corporate corner offices, newsrooms and classrooms around the world, is ChatGPT. In just five days after its unveiling in November the artificially intelligent chatbot, created by a startup called OpenAI, drew 1m users, making it one of the fastest consumer-product launches in history. Microsoft, which has just invested $10bn in OpenAI, wants ChatGPT-like powers, which include generating text, images, music and video that seem like they could have been created by humans, to infuse much of the software it sells. On January 26th Google published a paper describing a similar model that can create new music from a text description of a song. When Alphabet, its parent company, presents quarterly earnings on February 2nd, investors will be listening out for its answer to ChatGPT. On January 29th Bloomberg reported that Baidu, a Chinese search giant, wants to incorporate a chatbot More

From meagre beginnings in the 1980s, Gautam Adani has emerged as India’s richest citizen. Now, in just a few days, the foundations of his sprawling empire have been shaken. On January 24th a small New York investment firm, Hindenburg Research, published a report calling the Adani Group “the largest con in corporate history”. In a series of statements, the group responded by saying that the report was “maliciously mischievous”, “unresearched” and intended to “sabotage” a secondary share offering of the group’s flagship listed company, Adani Enterprises. The group also said that Hindenburg had published its report “without making any attempt to contact us or verify the factual matrix”. “We are deeply disturbed by this intentional and reckless attempt by a foreign entity to mislead the investor community and the general public,” wrote the group’s top lawyer, Jatin Jalundhwala. These fierce denials have not averted a sell-off of shares in Mr Adani’s seven listed companies, first right after Hindenburg’s report was published, then again when markets reopened on January 27th after a public holiday. In two trading days the collective market value of the Adani Group’s listed firms fell by $47bn, or 22%. Mr Adani’s personal fortune declined from $122bn at the end of 2022 to $93bn, according to the Hurun Report, a research firm. The episode has also drawn the world’s attention to one of India’s corporate success stories—and a significant motor of the country’s recent economic growth.In targeting Mr Adani, Hindenburg could not have selected a bigger whale. After dropping out of school at the age of 16, the entrepreneur moved through a succession of jobs, trading first in diamonds, then in metals and cereals, before entering the infrastructure business. Today his firms run some of India’s biggest ports, warehouse 30% of its grain, operate a fifth of its power-transmission lines, accommodate a quarter of its commercial air traffic, and produce perhaps a fifth of its cement. An affiliated Singaporean joint venture vies to be India’s largest food company. The Adani Group has also invested in strategically located ports in Australia, Israel and Sri Lanka. In the last financial year the group’s listed companies had total revenues of $25bn, equivalent to 0.7% of Indian GDP, and a net profit of $1.8bn. Their combined annual capital spending of around $5bn accounts for 4% of the total for all non-financial public companies in India. And Mr Adani’s plans are grander still. Between 2023 and 2027 the group is forecast to spend more than $50bn on investments, including in clean energy and hydrogen.Mr Adani is widely regarded as a master operator, with a genius for navigating the complicated legal and political landscape of Indian capitalism. Some investors have, though, occasionally expressed concerns about his group’s governance and opaque finances. That is the focus of Hindenburg’s report. It describes a complex network of funds and shell companies, some based in Mauritius, which interact with 578 subsidiaries spread through the seven publicly listed firms. Last year, Hindenburg claims, these entities engaged in 6,025 related-party transactions.Byzantine corporate structures are common in India and other emerging markets. But the report contends that the Adani Group is “engaged in a brazen stock-manipulation and accounting-fraud scheme”. The point of the complexity, Hindenburg alleges, is to manipulate the listed firms’ share prices and to shift money onto their balance-sheets “to maintain the appearance of financial health and solvency” amid high debts and relatively few liquid assets. As a consequence, Hindenburg wrote, valuations for the companies were overstated by as much as 85% and financial holes were temporarily papered over, despite severe shortages of liquid assets in five of the public firms. The group’s “obvious accounting irregularities and sketchy dealings” were enabled by “virtually non-existent financial controls”. Hindenburg claimed that Adani Enterprises had 156 subsidiaries but its reports were audited and signed off by a tiny accounting firm employing a handful of people, including some in their early 20s. Such allegations, the Adani Group said, have been “tested and rejected by India’s highest courts”. On January 27th the group released a PowerPoint presentation rebutting Hindenburg’s claims. Specifically, it noted that the group’s indebtedness is decreasing, and the operating companies’ debt issuance had been classed as investment grade by various rating agencies. It added that multiple accounting firms had been used to provide audits. Mr Jalundhwala said that Hindenburg’s report had led to “unwanted anguish for Indian citizens” and adversely affected the company and its shareholders. “We are evaluating the relevant provisions under US and Indian laws for remedial and punitive action against Hindenburg Research,” Mr Jalundhwala wrote.Hindenburg responded on Twitter that it stood by its report and that it welcomed the prospect of legal action, especially in America. “We have a long list of documents we would demand in a legal discovery process,” the investment firm said.For the time being, the report has upended Adani Enterprises’ much-anticipated secondary share offering. This was intended to raise around $2.5bn in new capital, in part to reduce debt. The first stage of the offering, accounting for 30% of the capital-raising, took place on January 25th and was fully subscribed, raising $735m. Several prominent investors put in bids, including the Abu Dhabi Investment Authority, Life Insurance Company of India, and entities related to two American banks, Goldman Sachs and Morgan Stanley. Since then Adani Enterprises’ share price has fallen below the offer price. The bigger public portion of the offering, which began on January 27th and was meant to conclude on January 31st, has so far attracted almost no buyers. ■ More

Do an image search for the word “business” or “manager”, and what comes back? Nothing that remotely resembles business or managers. It isn’t just that the people are attractive. It is what they are doing. Many stock photos feature well-dressed types sitting around a table. One of them is holding forth and everyone else is laughing madly, like cult members hearing that the Rapture has been brought forward a week. Listen to this story. Enjoy more audio and podcasts on More

FOR BOSSES and boards, dealing with the odd activist shareholder is par for the course. Contending with a swarm of such gadflies is unusual. Last October Starboard Value, an activist hedge fund, took a “significant” stake in Salesforce, a maker of customer-management software, arguing that the firm had failed to convert its leading market position into juicy margins and needed to cut costs. On January 4th Salesforce duly announced it would lay off 8,000 staff, or 10% of its workforce. That was not enough to swat off the attacks. On January 22nd it emerged that Elliott Management, a fearsome member of the gadfly genus, had also taken a multibillion-dollar stake in the company. The next day another, Inclusive Capital, was reported to have been buying Salesforce shares.So far the hedge funds have said little publicly about their demands. Deeper cost-cutting is almost certainly among them. Salesforce’s sales and marketing costs chew up 42% of its revenues, compared with 28% and 19% for SAP and Oracle, two big rivals, respectively (see chart 1). The activists could also push for a spin-off of one of Salesforce’s pricey recent acquisitions, such as MuleSoft, a business-software firm, Tableau, a data-visualisation tool, or Slack, a workplace-messaging app.Salesforce is not the only tech firm suffering such vexation. Last July Elliott was revealed to hold around 9% of Pinterest, a digital pinboard; by December it had wriggled its way onto the board. In October Altimeter, an activist fund with a holding in Meta, called on the social-media empire to reduce headcount and scale back its metaverse investments. In November TCI, another such outfit, demanded that Alphabet lay off staff, lower highish salaries and cut back on bets unrelated to its core search business, such as autonomous driving.All this buzz comes after a quiet few years. Between 2018 and 2021 the number of activist campaigns fell steadily worldwide. In 2022, as stockmarkets plunged, activists sprang back to life, launching 36% more attacks than the year before, according to Lazard, an investment bank. Silicon Valley, which went on an uncontrolled expansion binge amid the pandemic tech boom, presents a particularly juicy target. As Altimeter noted in a public letter to Meta, “It is a poorly kept secret in Silicon Valley that companies ranging from Google to Meta to Twitter to Uber could achieve similar levels of revenue with far fewer people.” Investors have also soured on tech stocks, whose promise of profits in the distant future look less attractive today as interest rates rise. The tech-heavy NASDAQ index has fallen by 30% since its highs in late 2021, twice as much as the S&P 500 index of big American firms. That has allowed activists to swoop in at discounted prices, notes Gregory Rice of BCG, a consultancy. In 2022, 21% of activist campaigns globally took aim at tech, up from 14% in 2018-21 (see chart 2). In America, last year’s figure was 27%.Dual-class share structures like those of Meta and Alphabet, which let founders keep majority voting rights, offer the targets some protection. Still, even founder-controlled firms have to keep shareholders happy. Meta’s share price took a drubbing after it rebuffed Altimeter’s call to ease off its metaverse plans. Two weeks later the company announced it would fire 11,000 staff, or 13% of its workforce, and trim up to $2bn, or some 5%, from its capital spending in 2023. On January 20th Alphabet, too, said it would sack 6% of its employees. Contrary to their reputation for short-term opportunism, activist investors can help boost long-term returns. One study of 2,000 activist campaigns concluded that target firms on average outperformed their rivals after five years on both share-price and operating measures. Microsoft and Apple, tech’s two giants, have both had constructive exchanges with activists in the past. In 2013 Apple was nudged by Carl Icahn, a veteran gadfly, into returning some of its mounting cash pile to shareholders. Microsoft’s revival in the past decade was helped along by the appointment of another activist, Mason Morfit, to the board at the start of Satya Nadella’s tenure as CEO in 2014. Whether or not other tech giants follow Apple’s and Microsoft’s conciliatory example, they may be realising that the activists aren’t going away. After Alphabet announced its lay-offs, TCI sent it another letter arguing they were too modest. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

IT IS HARD not to be in awe of Amazon. It is one of history’s greatest companies. Jeff Bezos nurtured the firm from the humble online bookshop he founded in 1994 into a tech juggernaut, selling everything from corn syrup to cloud computing, a future trillion-dollar industry that Amazon more or less invented (see chart 1). Today it is the world’s fifth-most-valuable company, third-largest revenue generator and second-biggest private employer. Its warehouses, data centres, shops and offices cover an area almost the size of Manhattan. Consumers, competitors and politicians have been left to wonder if Amazon would take over the world. Or whether it would stop there—it is investing heavily in Kuiper, a satellite-broadband venture.Listen to this story. Enjoy more audio and podcasts on More

Not a day goes by in India without news of the exploits of its wealthiest tycoon, Gautam Adani. In September his fortune was estimated at $140bn, double what it was the year before, largely thanks to the huge gains of the seven publicly listed companies he controls. That encouraged new acquisitions, including an Israeli port, an Indian TV-news network and the country’s second-largest cement producer.Listen to this story. Enjoy more audio and podcasts on More