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In the wee hours of Saturday, August 10, Hindenburg Research made a post on X saying - ‘Something big soon India’. Shortly after the dramatic post, the US-based short seller claimed that the SEBI chairperson Madhabi Puri Buch had a stake in offshore entities linked to Adani. As the markets opened on Monday, August 12, Adani share prices tanked up to 7%, losing ₹53,000 crore of investors’ wealth.
About a month ago, Kotak Bank was pulled into the Adani-Hindenburg saga where the latter accused SEBI of masking the Kotak name with the acronym KMIL. Hindenburg said that KMIL is an entity of Kotak Mahindra Bank which created an offshore fund structure used by Hindenburg's partner to bet against Adani.
Amid the ongoing Adani-Hindenburg saga, various financial jargon are being thrown around. In this blog, we’ll break down these complex terms from the Hindenburg report along with the context in which they were used. Let's dive in!
Latest Adani-Hindenburg Report: Decoding Financial Terms
The Adani-Hindenburg report alleges that certain offshore entities linked to the Adani Group were involved in siphoning off money, suggesting that funds were moved illicitly.
The term "siphoning off money" refers to the illegal or unethical transfer of funds from a business or account for personal use or to hide the money. It’s like secretly taking money out for purposes other than what it was intended for.
In its report, Hindenburg refers to shell entities based in Mauritius, which were allegedly used to transfer large sums of money secretly, potentially for activities like stock manipulation or hiding ownership.
“Shell entities” are the companies that exist on paper but don’t do any actual business. They are set up to hold assets or to move money around. Sometimes, they are used for legal purposes, but they can also be used to hide ownership or for illegal activities like tax evasion.
The report mentions that certain offshore entities tied to the Adani Group were allegedly involved in questionable financial activities, possibly to avoid regulations or taxes.
Such entities are located outside India, being the home country of the business. “Offshore entities” are often set up in places with different laws, and they can be used legally for tax benefits but might also be used for hiding money or avoiding taxes.
The report suggests that stock parking entities were used to obscure the true ownership of shares in Adani companies, possibly to manipulate stock prices or evade regulations.
This is when shares are temporarily transferred to another party to hide who really owns them. The original owner plans to buy them back later. It’s often done to make it look like the company is following the rules when it might not be.
The Hindenburg report discusses how changes in REIT regulations might have benefited private equity firms like Blackstone, raising questions about potential conflicts of interest involving Dhaval Buch, Madhabi Puri Buch’s husband.
A REIT is a trust that owns and manages real estate properties. People can invest in REITs like they would in stocks, and they make money when these properties make profits. REITs are governed by SEBI (Real Estate Investment Trusts) Regulations, 2014.
According to the report, some entities were involved in stock manipulation, which may have led to artificial movements in Adani’s share prices.
A stock is said to be manipulated when someone tries to control its movement to mislead other investors. For example, making the stock price rise or fall artificially to trick people into buying or selling. It is an illegal practice in India.
The report claims that certain investments linked to the Adani Group were routed through tax havens like Bermuda and Mauritius, potentially to avoid taxes or scrutiny.
A tax haven is a country that offers very low or no taxes for foreign businesses and individuals. These places attract people who want to pay less tax, but they can also be used for hiding money or avoiding taxes illegally.
The Hindenburg report highlights that SEBI was interested in the disclosure around Hindenburg’s short position, which suggests that the report’s authors were betting on the Adani share prices to drop.
This is when an investor bets that a stock's price will go down. They sell the stock now and plan to buy it back later at a lower price, making a profit if the price drops as expected.
According to the report, there was a questionable transfer of shares in Agora Partners involving the SEBI chairperson and her husband, potentially to obscure ownership or involvement.
This is when a shareholder decides to give up their shares in a company to someone else. It’s like selling your part of a business to another person.
The report raises concerns about undisclosed related party transactions within the Adani Group, implying that financial dealings between connected parties were not made transparent.
These are deals made between two parties that are connected in some way, like family members or companies that share the same owners. These transactions need to be disclosed because they can sometimes be unfair to other shareholders.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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