Short-seller’s claims of Adani conflict of interest denied by India’s market regulator chief

MUMBAI - Adani Group’s stocks fell on Aug 12 after Hindenburg Research accused the head of India’s market regulator of having conflicts of interest that allegedly prevented a thorough probe into its claims of manipulation and fraud at the conglomerate.

Shares of Adani Enterprises, the group’s flagship, slid as much as 5.3 per cent in early Mumbai trading, before paring some of their declines. Adani Energy Solutions plunged as much as 17 per cent as all of the conglomerate’s 10 stocks dropped.

In a report published on Aug 10, US short-seller Hindenburg said Ms Madhabi Puri Buch – the chairwoman of the Securities and Exchange Board of India (Sebi) – and her husband Dhaval Buch invested in offshore entities that were allegedly part of a fund structure in which Mr Vinod Adani, the brother of billionaire Gautam Adani, also had investments.

The Buchs denied the allegations.

The investments by the couple were made in 2015, two years before Ms Madhabi was appointed to Sebi, Hindenburg said, citing whistleblower information and other documents Bloomberg was not able to verify.

The fund structure is managed by India Infoline, a financial services and wealth management firm.

“We would like to state that we strongly deny the baseless allegations and insinuations made in the report,” the Buchs wrote in a statement shared by a Sebi representative. “All disclosures as required have already been furnished to Sebi over the years.”

The face-off between Hindenburg and Sebi is escalating, weeks after the short-seller was queried by the Indian regulator about its scathing report against Adani in early 2023.

The report wiped out more than US$150 billion (S$198 billion) in the Adani companies’ market value in February 2023, and led India’s top court to order a Sebi probe on possible Adani violations and any suspicious trading activity.

While Sebi has yet to make a case against the Adani Group, the regulator had sent Adani officials and Hindenburg notices seeking further information on suspected regulatory violations.

Hindenburg’s latest broadside at the Indian regulator for not acting tough on Adani comes at a time when the conglomerate has just returned to tapping equity investors and is back on its aggressive growth spree.

The securities regulator said on Aug 11 it had completed 23 of 24 investigations into the Adani Group, with one remaining probe “close to completion”.

It also added that proceedings in its investigation into whether Hindenburg violated securities laws are ongoing.

Disclosures made

Sebi “has adequate internal mechanisms for addressing issues relating to conflict of interest, which include disclosure framework and provision for recusal”, the regulator said in a statement.

“It is noted that relevant disclosures required in terms of holdings of securities and their transfers have been made by the chairperson from time to time. The chairperson has also recused herself in matters involving potential conflicts of interest.”

A spokesperson for the Adani Group said on Aug 11 that the latest Hindenburg allegations are “manipulative selections of publicly available information”.

The ports-to-power Adani conglomerate has repeatedly denied the short-seller’s accusations of share manipulation and accounting fraud.

“The Adani Group has absolutely no commercial relationship with the individuals or matters mentioned” in the latest report, the spokesperson said via a stock exchange filing on Aug 11.

“Our overseas holding structure is fully transparent” with regular disclosures, it added.

Hindenburg’s report on Aug 10 did not explicitly mention the precise nature of its current exposure to the Indian market.

While short-sellers in recent years have increasingly found themselves in regulatory crosshairs from the US to South Korea, it is unusual for such a company to call out the chief of an overseas market regulator on alleged ethical issues.

The fund that the Buchs invested in was the IPE-Plus Fund set up through India Infoline or IIFL, Hindenburg said.

The company in question now trades as 360 ONE WAM, and it said on Aug 11 the “IPE-Plus Fund 1 made zero investments in any shares of the Adani Group either directly or indirectly” throughout its tenure in the six years to October 2019.

“The fund was managed as a discretionary fund by the investment manager,” 360 ONE WAM said in an exchange filing.

“No investor had any involvement in the fund’s operations or investment decisions.”

Holdings by the Buchs in the fund were less than 1.5 per cent of its total inflow, it said.

The Buchs plan to issue a more detailed statement “in the interest of complete transparency”.

“We have no hesitation in disclosing any and all financial documents, including those that relate to the period when we were strictly private citizens, to any and every authority that may seek them,” they said.

A former investment banker and chief executive of ICICI Securities, Ms Madhabi moved to Singapore in 2011 where she joined Greater Pacific Capital, an Asia-focused fund.

She returned to India in 2017 to be appointed a full-time member of Sebi. In 2022, she was named chairwoman.

Hindenburg also raised questions about Ms Madhabi promoting real estate investment trusts (Reits) as a promising asset class without disclosing that Mr Dhaval is now an adviser to Blackstone, which has sponsored two of the four listed Reits in India.

Mr Dhaval has been a senior adviser to Blackstone Private Equity since 2019, before Ms Madhabi became Sebi’s chairwoman.
BLOOMBERG