How Hindenburg shorted Adani

This is an audio transcript of the FT News Briefing podcast episode: ‘How Hindenburg shorted Adani’

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, March 8, and this is your FT News Briefing.

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Jay Powell told Congress that the Federal Reserve might kick interest rates back into a higher gear. American women still earn less than men, and the pay gap has barely budged in decades. Plus, India makes it very hard for investors to place bets that a stock price will fall. So how did Hindenburg figure out how to short the Adani Group? We’ll take a look. I’m Marc Filippino, and here’s the news you need to start your day.

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Federal Reserve chair Jay Powell faced a tough audience yesterday. He was speaking to US lawmakers on Capitol Hill. And they wanted to know what the Fed’s doing about stubbornly high inflation. Here’s what Powell said.

Jay Powell
You have seen stronger labour market conditions, higher inflation, stronger consumer spending. And they do suggest that the possibility that we ultimately would need to raise rates higher than had been expected.

Marc Filippino
Markets did not like the idea of higher than anticipated interest rates. The S&P 500 ended the day down one and a half per cent and the yield on the policy sensitive two-year Treasury hit its highest level in 16 years. The FT’s Colby Smith has more.

Colby Smith
This testimony really served as the platform by which Powell could open the door to a bigger than expected interest rate increase than I think a lot of people across Wall Street and even some policymakers have signalled was gonna be the case. So just in a couple of weeks time, the FOMC is gonna meet again and decide on interest rate increases. And given the fact that they have been kind of downshifting the pace of rate rises over the past couple of months, all indications had pointed to them kind of continuing with this quarter-point interest rate increase. But very early on in the testimony yesterday, we heard that there is an openness to increasing yet again the pace of rate rises. And Powell said that that could be the case if, quote, “the totality of the data were to indicate that faster tightening is warranted”.

Marc Filippino
And by faster tightening, the Fed at its last meeting raised interest rates by 25 basis points, and the implication here is that the central bank could opt for a 50 basis-point rate rise when it meets in two weeks. But Colby, is that certain?

Colby Smith
A 50 basis-point hike is by no means a done deal. If anything, you know, prior to the most recent testimony, I think that the baseline view was that it would just be another quarter-point interest rate increase. But given Powell’s comments and the fact that he was willing to say so prominently in his opening remarks that a half-point rate rise is on the table, the odds of that outcome have, have risen quite dramatically. Now, in speaking to some economists, they say it depends chiefly on the outcome of incoming data before the next meeting. So kind of top of mind is the jobs report on Friday, the inflation report next week. And the indication there is that if, let’s say those numbers come in stronger than expected or do not show a significant kind of deceleration from the pace of the previous month, then the Fed is perhaps going to follow through with this more aggressive outcome.

Marc Filippino
Colby Smith is the FT’s US economics editor.

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The earnings gap between American men and American women is, well, it’s stuck. New data from the Pew Research Centre shows that women have almost made no gains over the past 20 years. Last year, they earned an average 82 per cent of what men earned. To learn more, I’m joined by the FT’s Taylor Nicole Rogers. Hi, Taylor.

Taylor Nicole Rogers
Hey, Marc.

Marc Filippino
All right, so the big question is, after big gains in the eighties and the 1990s, why has progress stalled?

Taylor Nicole Rogers
Well, the answer is not clear cut, which is part of the problem, right? If we don’t know why it happened, we’re struggling to solve it. But a lot of the experts I talked to said it’s two things. First, it’s that women are still facing a huge penalty when they take pauses in their career to focus on starting a family. And the other thing is that women have not been able to continue to break into some of these really high-paying fields that would raise women’s median earnings overall. So we looked at law, we looked at finance and at tech. And it seems like the number of women who are reaching the highest levels of those fields has also frozen.

Marc Filippino
Is there anything that’s being done to fix this to, to close the wage gap?

Taylor Nicole Rogers
Well, the trouble is, a lot of the things that we’ve been doing don’t seem to be working. So when you think about adding in benefits for childcare, when you talk about mentorship programmes and training things, these are all the solutions that people have in front of us. But we’ve been doing these things for decades and not a lot has changed. So it seems like maybe those things aren’t as effective as we thought. But when I talk to experts and activists, the answer they all had was that we need some sort of legislation to force companies to be more transparent about their gender balance and to encourage them to have some sort of quota at the top for the number of women who are on their board or in their C-suite, etc, etc. A lot of the countries that rank the highest on gender balance in the workforce, like France, Spain, Italy have laws like that in place and the US doesn’t.

Marc Filippino
Taylor, I’m wondering, did women make those gains in the 1980s or the 1990s, largely because they were starting from a much lower place?

Taylor Nicole Rogers
Yeah, someone put it to me as we kind of took care of all the low hanging fruit. And that we had these diversity programmes; we got more women into college. And now, we’re hitting the point where we’ve been able to train women to work through the system better. But now we actually have to change the system if we want to get the rest of the way.

Marc Filippino
Taylor Nicole Rogers is the FT’s US labour and equality correspondent. Thank you, Taylor.

Taylor Nicole Rogers
Thanks for having me.

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Marc Filippino
One of India’s most powerful global conglomerates, the Adani Group, is still reeling from accusations of fraud and stock manipulation. A New York financial firm made those allegations in a bombshell report back in January. They haven’t been proven. But Adani company stocks have taken a beating and numerous investigations are under way. Today, I’ve got the FT’s Ortenca Aliaj on the line to talk about the investment firm behind that report, Hindenburg Research. Hi, Ortenca.

Ortenca Aliaj
Hi.

Marc Filippino
So tell us a little bit about Hindenburg, and tell us a little bit about its founder, Nate Anderson.

Ortenca Aliaj
So Nate Anderson founded Hindenburg about six years ago, and initially it was that, it was a research firm. It will go out and dig into a company and then it will release a report.

Marc Filippino
Ostensibly exposing some fraud or something going wrong with the business.

Ortenca Aliaj
Yes, theoretically trying to expose fraud, but also making money from it. So this is what these guys do. And depending on who you ask, they’re seen as awful people who put out these reports and have this vested interest in the share price of a company going down. But other people see them as sort of like moral crusaders who want to expose wrongdoing. They’re quite a, the short sellers are quite a vilified sector of finance.

Marc Filippino
But a lot of investors believed Hindenburg, and there was a huge sell off, which is great if you’re a short seller like Hindenburg, because it made a bet that the company’s stock price is gonna fall. Do we know how much Hindenburg made?

Ortenca Aliaj
So the simple answer is no. We don’t know. Hindenburg and Nate himself have been very, very secretive about how this trade was made. That is partly because Indian companies are notoriously difficult to short. But also they tend to think that that should be the focus, really, of what’s happening here. In their mind, they’ve uncovered this huge fraud, which of course Adani has repeatedly denied.

Marc Filippino
So Ortenca, you wrote in your piece that the Indian government makes it really hard for investors to short a stock, and by short a stock, I mean, bet that a company’s stock price is gonna fall. How did Hindenburg then manage to short Adani?

Ortenca Aliaj
This is as much as Hindenburg has revealed, right, they’ve said, you know, they built a short position on Adani through US-traded bonds, which is fine; we sort of, we know how that works, and non-Indian traded derivative instruments. And that’s really the part that everyone is curious about and wants to know how, how do you build a short bet with non-Indian traded derivative instruments on an Indian company? So what Hindenburg would have had to do is find help, find the counterparties who would do this offshore. And one of the ways to do it would be to use India’s main stock index, which is called the Nifty 50, and in which Adani Enterprises is a constituent. And what you can then do is you can go to banks and you can ask that bank to create something called a single-stock future for you. It’s a, I mean, it’s a type of derivative. So it allows Hindenburg to have exposure to price movements on the index’s underlying shares.

Marc Filippino
So did Nate Anderson make a lot of money?

Ortenca Aliaj
The nature of the bet is so complicated, and there’s such little liquidity to do a bet like this. From at least, from what we understand and the people that we’ve spoken to, that Nate and Hindenburg are definitely going to make money on it. But it’s not, it’s not going to be this sort of huge windfall, at least we don’t think so.

Marc Filippino
Ortenca Aliaj is the FT’s M&A correspondent. Thanks, Ortenca.

Ortenca Aliaj
Thank you.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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