August 15, 2024
📰 FEATURE STORY
Does the latest Hindenburg report damage SEBI?
The Securities and Exchange Board of India (SEBI) has been in a tough spot over the past several months. It has been in the spotlight for all the wrong reasons, with its credibility on the line or at least seemingly under question. It’s involved in the ongoing saga of the Adani Group and revelations made by US-based short seller Hindenburg Research.
The latest report from Hindenburg alleged that SEBI chairperson Madhabi Buch and her husband Dhaval Buch were involved in Adani Group’s offshore funds. It alleged that obscure financial systems were used in a money-siphoning scandal. It’s not a good look for a top regulator. But how far will these allegations go? Is there enough here to damage SEBI for the foreseeable future?
Context
We again find ourselves in the middle of the mega Indian conglomerate, the Adani Group, versus the Hindenburg Research matchup. A little refresher on what has transpired already. Last year, Hindenburg released a report that alleged Adani improperly used tax havens and flagged the company’s high debt levels. The company also disclosed it held short positions in Adani companies through US-traded bonds.
The report resulted in a $150 million meltdown in Adani’s publicly listed companies. Over time, they slightly recovered. Obviously, Adani refuted all allegations and decided to shore up confidence. The company brought in investors like Abu Dhabi’s GQG and diluted some of the family’s shareholding.
SEBI decided to investigate with the Supreme Court overseeing. Following cases brought by public interest litigants, the apex court said the cases didn’t need to be transferred to other agencies. The court also said the company didn’t need to face any additional investigations. Adani declared victory.
Hindenburg wasn’t done. Its latest report alleged that Buch and her husband previously had investments in offshore accounts also used by the Adani Group. The report cited whistleblower documents and stated they invested in the sub-funds of the Bermuda-based Global Opportunities Fund in 2015 and exited in 2018. The report asked why SEBI wasn’t following up on a trail that could’ve led to its own chairperson.
Hindenburg goes into specifics. Its report alleged that weeks before Ms Buch became a full-time SEBI member in 2017, her husband wrote to a fund administrator and asked to be the sole person authorised to operate the offshore accounts.
It also flagged her husband becoming an advisor for US-based investment manager Blackstone in 2019, which invested in Indian real estate trusts. They said some of SEBI’s policy changes during Ms Buch’s tenure benefitted companies like Blackstone.
Ms Buch and her husband have denied any wrongdoing. According to them, the investments were made in 2015 when they were private citizens. They were also made due to Mr Buch’s childhood friendship with the fund’s then-chief investment officer, Anil Ahuja, who they said had decades of a strong investing track record.
As far as SEBI is concerned, it said all of Hindenburg’s previous allegations were duly investigated, and its chairperson made the necessary disclosures and recused herself in matters where there were potential conflicts of interest. Is this enough? Will these latest allegations continue to dog SEBI?
VIEW: Reputation damaged
India is one of the world’s hottest investment destinations. Anything to tarnish that image will cost India dearly in the long run. Investors, global banks, companies, and funds place a lot of importance on the strength of a country’s regulatory framework before they decide where to put their money. Over the past several months, SEBI has taken a beating thanks to the revelations by Hindenburg. It doesn’t help that the Adani Group, at the centre of all this, is seen as the government’s corporate ally.
How SEBI investigated the previous allegations against Adani’s astounding rise in share prices has troubled independent observers. In the hours following the latest report, the government has been silent. SEBI’s “appropriate response” statement late Sunday night isn’t enough. It should’ve come from people in a position to speak for SEBI. Where are the board of directors?
Despite the Supreme Court’s deadlines, SEBI still hasn’t finished investigating all the allegations against Adani from the initial Hindenburg report this January. SEBI’s excuse that it had run into a wall in getting information from the offshore funds doesn’t bode well for its credibility. All signs point to the regulator being hesitant to be transparent. What were the disclosures made by Ms Buch? Why didn’t SEBI ask her to dissociate from the two consulting firms she owned? The latest allegations have made Madhabi Buch’s position as chairperson untenable, and SEBI’s credibility has further eroded.
COUNTERVIEW: Shouldn’t jump to conclusions
It seems Hindenburg was looking to make a lot of noise and pining for a controversial debate that would eventually become political. It used social media by first teasing on X that “something big” was coming. Perhaps the company’s ego was bruised after SEBI sent a show-cause notice earlier this year. Concerning the allegations themselves, on the surface, they don’t look good for SEBI or its chairperson. The regulator hasn’t exactly covered itself in glory this past year on this matter. But it’s all about the details.
One of the allegations pertains to how Ms Buch and her husband invested in the Mauritius-based IPE Plus fund. Hindenburg said this was also used by Vinod Adani to move money. Former SEBI officials have stated that there was no specific conflict of interest here since the investment was made in a different segregated fund. Sharing an asset manager doesn’t mean a conflict of interest since they provide services to several clients.
On the Blackstone aspect, SEBI had mooted Real Estate Investment Trusts (REITs) long before Buch took a position at Blackstone. SEBI wanted to streamline the rules, so it introduced REITs and Infrastructure Investment Trusts as two new asset classes. Indian REIT regulations don’t have any benefits or sops to the issuers and are on par with global regulations.
Reference Links:
- EXPLAINER-Adani vs Hindenburg Research: What you need to know – Economic Times
- Explained: What are Sebi’s conflict of interest rules and how do they apply in the case of Madhabi Puri Buch – Moneycontrol
- SEBI-Hindenburg-Adani row shows mishandling of credibility crisis – The Tribune
- Hindenburg Report: Silence from Government and Absurd Statements Further Erode India’s Credibility – The Wire
- Hindenburg vs SEBI: The Best Course of Action for Madhabi Buch is to Resign – The Quint
- Hindenburg Attacking Sebi’s Credibility, Indulging in Character Assassination of Its Chief: Buchs – News18
- Hindenburg has got a credibility crisis: Mahesh Jethmalani – The Economic Times
What is your opinion on this?
(Only subscribers can participate in polls)
a) The latest Hindenburg report does damage SEBI.
b) The latest Hindenburg report doesn’t damage SEBI.
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