Hindenburg 2.0 needs a different response from India

By Andy Mukherjee

Hindenburg Research’s allegations of potential conflict in the Adani inquiry against the chief of India’s market watchdog — denied by her and the regulator — refuse to go away for a simple reason. They are serious enough to merit a response by an independent authority.

The Supreme Court in New Delhi should consider bringing back the committee it had set up last year after the New York-based short seller’s original report. It’s the most obvious solution to a credibility crisis whose corrosive effects are being masked by runaway stock valuations.

In January 2023, Hindenburg had accused the tycoon Gautam Adani of pulling the largest con in corporate history. Although the infrastructure group denied all allegations of stock-price manipulation, undisclosed related-party transactions, and breach of public-shareholding norms, the court asked the Securities and Exchange Board of India for a probe. It also asked a panel of experts to assess if there had been regulatory lapses. 

The committee concluded that the SEBI’s investigation into the 42 offshore investors in 13 opaque vehicles that had bought chunks of the Adani empire was a “journey without a destination.” Dig into any of the 42 names belonging to Cayman Islands, Malta, Curacao, British Virgin Islands, Bermuda, Ireland and the UK, and you may find another hard-to-decipher company, or offshore fund. Finding the ultimate beneficiary owner may be a never-ending exercise.

That was in May last year. What does the panel think now, following Hindenburg’s latest salvo, which raised doubts about the regulator’s objectivity in the saga? The SEBI says it has finished 23 of its 24 Adani inquiries. Yet India’s biggest corporate-governance controversy is nowhere close to being put to bed. Last year, the experts said they didn’t have the evidence to return a finding of regulatory failure. The court could instruct the members to weigh the new information put forward by the short seller and decide if the SEBI chair’s alleged personal conflict is a strong enough reason to arrive at a different decision. 

Thanks to the short seller’s August 10 note, Madhabi Puri Buch’s personal investments are under scrutiny.

As a private citizen living in Singapore in 2015, she says she had invested in a fund run by a childhood friend of her husband’s. This fund is part of a web of overseas investment vehicles that received money from associates of Vinod Adani, Gautam’s older brother, according to investigations last year by the Financial Times and others.

Through this opaque network, Adani associates controlled large swathes of the empire, posing as arms-length investors, the articles had alleged. The conglomerate has consistently denied that any of its public shareholders were fronts for the tycoon’s family. As for the SEBI chief’s involvement, that the friend investing her and her spouse’s money was also a director in Adani’s flagship firm is central to allegations that there was a conflict for Buch that was worth a recusal.

Buch responded to Hindenburg’s latest accusations by saying that she had followed all disclosure and recusal norms. But as of now, it’s her word against the short seller’s. If the committee of experts was aware last year of her past personal investment and found nothing problematic in it, then it should simply publish that fact. If she had only told the government, which brought her in as a SEBI member in 2017 and made her the chief in 2022, the panel should sift through the files and decide if the disclosures were comprehensive, timely, and made in good faith — and whether Buch followed them up with appropriate recusals.

Her senior colleagues, who rushed to her defense by issuing a press release on SEBI’s behalf, may have been trying to protect the organization’s reputation. But they ended up muddying the waters even further. That’s because they don’t have the authority to ask questions of the chair. In a video interview this week with The Wire’s Karan Thapar, Chandrashekhar Bhave, a former SEBI chair, rightly said that a credible response has to come from someone who sits above the organization. 

Adani’s friendship with Narendra Modi, the prime minister, makes the entire Adani-Hindenburg-SEBI saga a matter that perhaps should not be trusted to any arm of the political executive. The conglomerate denies suggestions that it has benefited from the founder’s proximity to the politician. Modi, who used to be chief minister of Adani's home state of Gujarat, doesn’t speak about Asia's second-richest businessman. An inquiry is best left to the judiciary or lawmakers.

The Modi government refused to set up a joint parliamentary committee after Hindenburg 1.0. Now that his ruling party has lost its majority in parliament, it is even less likely to risk such a move. So while the composition of last year’s court-appointed committee didn’t satisfy everyone, reprising the panel is the best course of action under the circumstances.

However, the experts must be able to ask questions of Buch’s employer. Hindenburg 2.0 has gone beyond the Adani controversy and noted that the SEBI chair also owned two consulting firms, in Singapore and India. Two weeks after being appointed to the top regulatory job, she transferred shares in the Singapore unit to her husband and disclosed the change to the SEBI. But she continued to retain a 99% ownership interest in the Indian firm. She says her husband runs the business now, working with “prominent clients” in Indian industry. So the committee has to ask who in the finance ministry allowed Buch to earn consulting income while being the SEBI chief. 

I asked SEBI these questions Wednesday afternoon. There has been no response to my email yet. A finance ministry official told The Economic Times that there are no plans as of now to probe Buch.

A credible inquiry will be better than doing nothing, and hoping that the controversy will blow over. India's stock market is among the world’s most expensive. Valuations are twice as high as emerging-market equities. More than 10 million new investors have opened trading accounts in less than six months, pushing the number of participants at the National Stock Exchange to 100 million. While authorities do want to cool the speculative fervor, they can’t afford a stampede for exit. To allow the suspicions raised by Hindenburg to linger could be a dangerous mistake.