12 Monday, 30 January 2023

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THE MAN BEHIND

A $50 BILLION SELL-OFF
Who is Nathan Anderson and why have Indian investors sold shares in response to a report by him?

Varun Sood
varun.soon@livemint.com
beNgAluru

T
he antecedents and credentials
of New York-heardquartered
short-selling research firm Hin-
denburg, whose bearish take on
the Adani group has set off a fire-
storm in Indian capital markets, prompt-
ing a $50 billion sell-off in equities, has
piqued the curiosity of Indian investors.
Short-selling, in which investors bet on
the price of a stock going down, and often
talks down the prospects of the company,
has long been controversial. But it is
acknowledged as an effective mechanism
that keeps markets efficient. It’s only
directionally different from a pundit talk-
ing up a stock on TV.
While domestic observers may deride
or praise Hindenburg, depending on their
own views, what leaps out at you on
perusal of the firm’s work is how prolific it
is in churning out research reports.
Since Nathan Anderson started Hin-
denburg as a standalone research firm in
December 2017, the firm has put out notes
on 45 companies, according to an execu-
tive and review of the reports by Mint.
Anderson has said in past interviews
that Hindenburg has six employees. That
means an average of nine reports per
employee per year.
The firm’s name is an allusion to the
nature of its work. The company’s site says
it’s named after the “epitome of a totally
man-made, totally avoidable disaster”. That
was the Hindenberg airship accident of 1937,
which killed 37 people in New Jersey, US.

SOUND RECORD

T he firm can be pleased with its track

record.
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, allow-
ing them to take short positions and profit
once the report is released. Such firms
make a commission off the profits its inves-
tor-partners make—it’s akin to a subscrip-
tion 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.
“This success rate of more than 75% is
actually a very impressive number,” said
an investor who works with a New York-
based hedge fund. “So say someone like
Elliott (Capital Management) would do
two or three short trades a year and have
a more than 90% success rate.”
‘OVERSEAS CONGLOMERATE’
I n January 2022, a 6,500-word profile ₹20,000 crore ($2.4 billion) secondary
piece of Nathan Anderson was featured sale of shares on Friday—leaves it open to
in the New York Magazine. The piece car- debate if it was done to derail what is billed
Nathan Anderson, photographed on 6 January 2023 in New York. Anderson exposes corporate fraud and ponzi schemes through his company Hindenburg Research.
ing 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 investiga-
tion 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
GETTY IMAGES
to have taken the battle to a block of bears
in the early 1980s, led by Manu Manek,
mint
SHORT
THE BIG SHORT
who were driving down the RIL stock. He STORY Three-quarters of 45 investment calls by Hindenburg in the last 60
rallied supporters who drove the stock up, months have helped their investors profit
causing massive losses to the bears. Performance of the stocks (excluding Adani Group) called so far by Hindenburg
Anderson’s firm is among the youngest WHAT Number of calls
to make a name for itself in the space of 100% to 75% (Eros International) 21
short sellers and competes with Carson Hindenburg is among the
Block of Muddy Waters Research and youngest firms to make a name 75% to 50% (DraftKings) 8
Andrew Left of Citron Research. in the space of short sellers. It Fell 50% to 25% (Standard Lithium) 3
Their calls can prove disruptive to com- competes with Carson Block of
panies and are therefore loathed by tar- Muddy Waters Research and Up to 25% (New Pacific Metals) 2
geted managements and investors in such Andrew Left of Citron Research.
companies alike. More than 100% (Bloom Energy) 3
“It is not easy being a short seller funda- Rose Less than 100% (Ebix) 8
mentally for two reasons,” said a New HOW Performance period is from the date of publication of the report on the respective company till 27 January 2023.
York-based fund manager, who has previ- The parantheses contain the name of a major company from the list.
ously worked at a short seller firm. “First, Firms such as Hindenburg
typically share its research with a
because there is an inordinate amount of
work you need to do. Second, you are bet-
ting against the market, which by nature
small pool of investors ahead of
the public release, allowing them
Performance of the stocks of Adani Group since Hindenburg's publication (in %)
Adani Adani Ports
Enterprises and SEZ
Adani Adani Adani Green Adani
Power Transmission Energy Total Gas
Adani
Wilmar
ACC Ambuja
Cements
NDTV

ried the following paragraph. as the country’s largest follow-on-public has an upwards bias, and you are betting to take short positions and profit
“ … In recent months, sale of shares. against the very nature of the market.” once the report is released.
-5.3
he has kept me abreast This was because Hin- Before the bet on Adani, Hindenburg’s
of Hindenburg’s work Before the bet on Adani, denburg had also most prominent short attack was the one -9.2 -9.4
on a forensic project Hindenburg’s most prominent decided to profit from its that targeted Nikola, in which it accused the AND
involving an overseas two-year research. electric-truck maker of “an ocean of lies.”
conglomerate. “We just short attack targeted Nikola, “After extensive Nikola, which at one point had a $34 billion 75% of 45 investment calls by
-19.6 -19.0
downloaded the entire research, we have taken a market value, is now worth $1.3 billion, and Hindenburg in the last 60 -22.2
in which it accused the months have helped its investor-
-23.0 -23.9
Mauritius corporate short position in Adani a US jury convicted founder Trevor Milton -24.4
registry,” he told me in electric-truck maker of “an Group companies of defrauding investors in October. partners profit. Short sellers won -27.5
late November. “It’s a through US-traded Hindenburg first researches a target firm, big (target stock down over 50%) Calculation period is from 24 January to 27 January 2023.

pretty extensive web.” ocean of lies.” bonds and non-Indian- betting its stock will fall, and then promotes at least 29 out of 34 times. Source: Nasdaq, NYSE, Canadian Stock Exchanges, Hong Kong Exchange, Mint research
SARVESH KUMAR SHARMA/MINT
He was still figuring out traded derivative instru- its findings publicly through social media.
how he would be able to profit from the ments,” Hindenburg said in its note. Since Hindenburg research first
investigation’s findings, whenever it ulti- tweeted about its report on Adani, on 25 This becomes significant in case of appear to be in danger of default, as its working on the model of poking holes at a
mately came to completion.” SELLING SHORT January, almost a million people saw the Adani Group as US dollar bonds and cash flow exceeds the interest costs on its listed company’s story and then working
That unnamed conglomerate, it now
turns out, was Adani Group, whose I ndia has not been witness to this kind of
short sellers before. Normally, short
founder Gautam Adani was, until the sellers borrow a stock, betting it will fall. If
tweet in the first five days.
But unlike most short-sellers deciding
to trade into the equity of a stock, Hinden-
Rupee Bonds accounted for 37% of the ₹2
trillion ($24 billion) debt of the five listed
entities, including Adani Enterprises,
total borrowings by a wide margin.
With Hindenburg declaring it has
with some short sellers.
Eros International Plc, the New York
shorted Adani bonds, and if they succeed Stock Exchange-listed subsidiary of the
start of last week, the world’s third-rich- the stock indeed falls, the short seller buys burg has taken a short position in bonds Adani Ports, Adani Power, Adani Green in driving down the Indian group’s bonds Indian movie production firm Eros, filed
est businessman. the now-cheaper shares back, returns raised by Adani and that are available for and Adani Transmission, according to a and thus driving up the a defamation case
On 25 January, Anderson’s research them to the broker or lender, and pockets trading in the US and other non-Indian- CLSA note, dated 26 January. yield, it may have to con- against a group of short
firm Hindenburg released a devastating the profit. traded derivative instruments. Corporate bonds are financial instru- sider alternative modes Unlike most short-sellers sellers and ClaritySpring
report, titled “How The World’s 3rd Rich- There are two varied tribes of these There are two reasons. ments that allow a company to raise money to borrow or refinance deciding to trade into in a court in New York in
est Man is Pulling The Largest Con in Cor- short-sellers. Firstly, it appears Hindenburg and from investors. A company pays interest on its debt. To begin with, 2017. According to the
porate History”. At the top of the pyramid are the hedge some of its investors may not have the principal and returns the borrowed amount Adani bonds’ yields rose the equity of a stock, lawsuit, a copy of which
Over two trading days (25 and 27 Janu- funds or activist funds. Feared activist license to buy and sell stocks from India’s when the bond comes due or matures. marginally by four basis Hindenburg has taken a was reviewed by Mint,
ary), the 10 listed entities owned by Adani investor Elliott Management and Bill Ack- market regulator, the Securities and Unlike buying shares, which allow inves- points since the report Anderson had published
lost between 5% and 25%. man’s Pershing Square Capital Manage- Exchange Board of India. tors to own equity in the company, corpo- surfaced on Wednesday. short position in bonds three articles under the
Adani group has called Hindenburg’s ment are a few examples. These large A related reason is that had Hindenburg rate bonds do not let investors buy a stake A continuation of this name Hindenburg
allegations malicious and fabricated, and firms also have a few celebrated individu- actually taken a short call on the stocks of of a firm. While shareholders’ wealth is a trend in the coming days raised by Adani. Research in July and
published a detailed rebuttal of its charges als who have made a name for themselves the 10 listed entities owned by Adani, it function of how a stock performs, bonds may make future bond August 2017, and also
Sunday night. through large and famous contrarian calls. would have attracted the jurisdiction of assure investors of a fixed income which offerings by the Adani Group more expen- followed up with his tweets.
“I can confirm that, yes, when I started Jim Chanos of Kynikos Associates (whose the market regulator, which frowns and the company has agreed to pay as interest sive than in the past. The Twitter handle of Hindenburg was
writing my article about Hindenburg (in decision to sell Enron shares before the does not allow betting a stock will fall on the principal sum of money borrowed. made in July 2017. The petition by Eros
approximately September 2021), he told company’s collapse in 2001) and Michael beyond intra-day calls. It is still imperative for a company that is SECOND ACT was dismissed by the judge.
me that they were working on an investi- Burry, founder of Scion Capital (who prof-
gation of Adani, which he said at the time ited from the subprime mortgages in
would be a long-term project,” Andrew 2007 and 2008) are two such names.
A bigger reason for this trade of bonds is
that it limits losses if Hindenburg’s call
goes wrong while the upside on profits is
highly leveraged to pay its bondholders on
time, even if it is having difficulty paying
back its debt. Suppose a company borrows
T his is in fact not the first time Ander- Anderson did not respond to a detailed
son is clashing with Indian business- questionnaire.
men. Prior to Hindenburg, Anderson ran Although Anderson in earlier inter-
Rice, the author of the piece, told Mint. Burry, however, also lost money shorting immense if it gets it right. $1 million at 5% annual interest. Any news another firm called ClaritySpring Inc, a views has mentioned that he works with a
“He (Nathan Anderson) mentioned that Tesla stock more recently, illustrating the Put simply, the overseas bond markets that the company has trouble repaying its database that sought to connect small group of 10 like-minded investors, there is
they had downloaded the entire Mauritius risk involved in this tactic. are a fair playing ground for short sellers, as creditors will drive down bond prices and funds with institutional investors. By no publicly available information on the
corporate registry as part of their investi- Closer home, Reliance Industries Ltd overseas market regulators give both short drive up bond yields. December 2018, he was looking to shut research group’s financials, employees or
gative process and were in the midst of try- founder Dhirubhai Ambani is renowned sellers and long buyers a level playing field. To be sure, Adani Group does not ClaritySpring and had already started the names of the investors.