Thread by @themoneymemo

Why has @HindenburgRes come up with the controversial Adani research report now?

How have they engineered their Big Short?

And how they have benefited from it?

Let’s find out in a short 🧵:

#AdaniGroup #stockmarketcrash #Adani #AdaniFPO

Hindenburg Research is a firm that looks for highly leveraged, absurdly valued companies that may undergo a price correction (or even a collapse) in the future.

They’re named after the Hindenburg airship, that went down in flames on 6 May, 1937.

#AdaniGroup #Adani

This time, they’ve set their eyes on Adani group of companies.

They’ve put out a detailed report on how the group is on its way to a spectacular collapse due to fraud and stock manipulation.

Not to mention absurd valuations and debt positions.

#Adani #AdaniEnterprises

They say that they’ve shorted the Adani stocks using US Bonds & non-India traded derivatives.

This means that they’ve probably put the bonds as collateral in an offshore OTC trade.

Since India doesn’t allow FIIs to short-sell onshore, the cost of this trade could be quite high.

Why?

Because whenever someone offers you an opportunity with a higher risk, the cost of that also comes with a premium.

This means Hindenburg was already bleeding cash/margin as Adani stock prices marched on higher.

Also, there’s an FPO in the works.

#Adani #AdaniFPO

The FPO is being offered at a higher price than CMP, thereby increasing the chances of prices shooting up higher in the longer run.

This would mean Hindenburg having to bring in more collateral, as margin requirements for the short would go up even higher.

#Adani #margincall

It’s quite natural for anyone holding a significant short position against Adani to come out with something to prevent the prices from going up further.

Otherwise they would get margin-called and will have to abandon the short at a huge loss.

So what does Hindenburg do?

They make public the information that they’ve so painstakingly acquired and collated, for two things:

1. Make public aware thereby creating awareness/panic

2. Bring prices down so margins required would be lower (which can be freed up for another opportunity)

#Adani #ADANIENT

Why else would you let everyone know about a great trade that stand to make you millions?

If everyone takes a short position in time, their profits are going to be diluted for sure.

So the timing of their research report makes perfect sense.

#Adani #AdaniEnterprises

On 27 Jan, Adani stocks lost almost $2B in value as markets fell.

LIC, with almost $10B of public money invested into Adani has been the biggest loser in this downturn.

It’s sure to have made Hindenburg very happy, & their strategy might just work if the correction persists.

However, what’s the truth behind their report?

It’s difficult to say.

It’s well-known that Adani stocks are highly leveraged and their PE ratios are absurdly high.

But the rest of it needs to be scrutinised by a competent authority that’s unbiased.

#stockmarketcrash

What’s your take on the controversy?

Comment below 👇🏼

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