Adani Vs Hindenburg: Govt Says SEBI Competent To Handle Issue; Agrees to SC Suggestion on Setting Up Committee
Moneylife Digital Team 13 February 2023
While agreeing with the Supreme Court's suggestion on appointing a committee to protect investors' interests, the Union government says the Securities and Exchange Board of India (SEBI) is competent to handle the fallout of the Hindenburg Report on Adani group. Since 24 January 2023, when Hindenburg published its report, shares of all Adani group companies have fallen 25% to nearly 70%. 
 
Solicitor general Tushar Mehta informed the bench led by chief justice DY Chandrachud that the Union government has no objection to forming a committee. "We would not like to undermine the competence of the agencies, including SEBI. But we are open to suggesting names for forming an expert committee to examine changes required in the regulatory framework." 
 
"But the remit of the committee we can suggest. We can provide names in a sealed cover. The committee may have some adverse impact on the flow of money," Mr Mehta told the apex court. 
 
The SG stressed that the committee's remit should be very relevant because any unintentional message to the international and domestic investors that even a regulator or statutory monitoring authority also needs monitoring by a committee appointed by the SC may have some adverse impact on the flow of money.
 
The bench, also comprising justice PS Narasimha and justice JB Pardiwala, asked Mr Mehta, the SG, to come back with the proposed remit of the committee by Friday and put it down on a note for the bench to examine so that it could either modify or reflect on it and then it can pronounce an order.
 
Advocate Tiwari, one of the petitioners, argued that although the organisational structure is there, yet this problem has arisen, and there may be some loopholes which could be examined by the expert committee.
 
The bench asked the government to apprise it on Friday about the remit of the committee. 
 
Commenting on the government proposal to set up a committee, senior counsel Prashant Bhushan, in a tweet, says, "Modi govt will form a committee in the Adani and Hindenburg matter, select the members; decide the remit of the committee & submit it to SC in a sealed cover! This in a case where allegations of favouring & shielding Adani are against the govt!"
 
 
The bench was hearing pleas to issue directions to SEBI and the Union home ministry to conduct an inquiry and register a first information report (FIR) against Nathan Anderson, founder of Hindenburg Research and his associates in India for its recent report on the Adani group. Advocates Vishal Tiwari and ML Sharma have filed two separate petitions concerning the Hindenburg report.
 
Last week, the SC observed that there is a need for a robust regulatory framework to protect the interest of investors and if the Union government agrees, a committee may be set up to suggest regulatory improvements.
 
Last Monday, Adani group decided to prepay US$1.114bn (billion) as part of its commitment to reduce the overall promoter leverage backed by Adani-listed company shares ahead of its maturity of September 2024. In a statement, Adani group says, "In light of recent market volatility and in continuation of the promoter's commitment to reduce overall promoter leverate backed by Adani listed company shares, we are pleased to inform that promoters have posted the amounts to prepay US$1,114mn (million) ahead of its maturity of September 2024." (Read: Adani Group To Prepay US$1.11bn Loan To Release Pledged Shares in 3 Companies
 
Earlier this month, reacting for the first time to the stock price crash of Adani group companies, market regulator SEBI says it seeks to maintain the orderly and efficient functioning of the market and has put in place a set of well-defined, publicly available surveillance measures to address excessive volatility in specific stocks. Earlier, finance minister Nirmala Sitharaman also commented on the Adani group crash, saying India's macro fundamentals and image are not affected by this and that it the country's perception remained intact.
 
The market regulator says it is committed to ensuring market integrity and to ensuring that the markets continue to have the appropriate structural strength to function in an uninterrupted, transparent and efficient manner, as has been the case so far.
 
According to SEBI, the Indian financial market, as represented by Sensex and Nifty, has demonstrated ongoing stability and is continuing to function in a transparent, fair and efficient manner. "On a longer-term basis also, Indian markets have been viewed positively by investors. A cross-country comparison of dollar-adjusted market returns with both peer and developed countries, during the past three years till date, places the Indian market as a positive outlier."
 
Commenting on the withdrawal of follow-on public offering (FPO) by Adani Enterprises Ltd, the flagship of Adani group, the finance minister asked, "How many times have FPOs not withdrawn from this country and how many times has the image of India been suffering, because of that and how many times have FPOs not come back?"
 
"There are fluctuations in every market, but the accretion over the last few days establishes the fact that the perception of both India and its inherent strengths is intact," she added.
 
Earlier, allaying concerns over Indian banks' exposure to the Adani group, the Reserve Bank of India (RBI), without naming, clarified that the banking sector remains resilient and stable as per its current assessment.
 
In a statement, RBI says, "There have been media reports expressing concern about the exposures of Indian banks to a business conglomerate. Various parameters relating to capital adequacy, asset quality, liquidity, provision coverage and profitability are healthy. Banks are also in compliance with the large exposure framework (LEF) guidelines issued by the RBI."
 
Last month, US-based Hindenburg Research with a focus on activist short-selling, claimed: "the seven key listed companies of Adani group are 85%+ overvalued even if you ignore our investigation and take the companies' financials at face value."
 
The Adani group responded to the Hindenburg report at length in an over 400-page response (the actual response is 54 pages, while the rest comprises annexures), raising questions against the ulterior motives and modus operandi of the US-based research firm. In response, Hindenburg says it believes that "fraud is a fraud, even when it is perpetrated by one of the wealthiest individuals in the world". (Read: Adani Replies With 413-Page Report; Hindenburg Says Fraud Cannot Be Camouflaged With Patriotism)
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