The magnitude of the plunge in stocks tied to Indian billionaire Gautam Adani is rivaled by only a handful of short-seller campaigns in history.
(Bloomberg) — The magnitude of the plunge in stocks tied to Indian billionaire Gautam Adani is rivaled by only a handful of short-seller campaigns in history.
Chief among them are Enron Corp. and Wirecard AG, whose collapses were spurred by activist short-sellers who found flaws in their corporate governance. Hindenburg Research has now targeted Adani’s group of companies, saying it’s shorting Adani’s US-traded bonds and non-Indian-traded derivatives after accusing the group of fraud. It said its report relates solely to the valuation of securities traded outside of India.
It’s early days for Adani’s group of companies and what lies ahead is unclear. Adani has repeatedly denied Hindenburg allegations, including that it artificially inflated stock prices. Still, it failed to stop a stock slump that wiped out more than $110 billion from ten firms related to Adani group, including the flagship Adani Enterprises Ltd.
“The impact and damage to Adani’s price is likely to persist for some time,” said Charles-Henry Monchau, Chief Investment officer at Banque SYZ, citing the complex structure of the industrial conglomerate’s energy-to-ports businesses.
Here are some of the biggest stock-market plunges that were triggered by short-sellers:
Enron Exposed
Enron’s declaration of bankruptcy in 2001 marked one of the most spectacular financial collapses in history, with the Houston-based firm losing more than $65 billion in market value from August 2000 until its Chapter 11 filing. Jim Chanos of hedge fund Kynikos Associates Ltd. built his reputation by wagering that Enron would fail — he was proved correct. The energy-trading giant’s downfall, triggered by revelations of shady accounting practices, still reverberates throughout the business and political world today.
- The collapse of Enron, which cost shareholders billions and left thousands of people unemployed and without pensions, spurred the passage of laws and regulations designed to improve financial reporting accuracy.
The Wirecard Shock
Viceroy’s Fraser Perring was part of a team behind a damning 2016 report that accused Wirecard of money laundering and facilitating the evasion of US internet gambling restrictions. The company, which in 2018 had a market value of around €24 billion ($26 billion), collapsed after revealing in 2020 that €1.9 billion of assets likely never existed.
Exposing Nikola
Hindenburg founder Nathan Anderson took an interest in Nikola Corp. after Bloomberg News published a story in 2020 on how founder Trevor Milton had exaggerated the capability of his debut semi truck. Nikola, which at one point had a market value of around $30 billion, is now worth $1.3 billion. A jury in October convicted Milton of defrauding investors. The stock has tumbled about 95% from its peak in 2020.
- Hindenburg has targeted about 30 companies since 2020, and their stocks on average lost about 15% the next day, according to calculations by Bloomberg News. The shares on average were down 26% six months later.
- Hindenburg’s other bearish calls include electric-vehicle makers Lordstown Motors Corp. and Workhorse Group Inc.
Valeant’s Drop
Short sellers Fahmi Quadir and Citron Research founder Andrew Left shorted the drugmaker formerly known as Valeant Pharmaceuticals, now trading as Bausch Health Companies Inc. The stock’s market value shrunk from more than $87 billion in August 2015 to under $4 billion in 2022. They prevailed over billionaire investor Bill Ackman, who made a big loss on his Valeant long bet, according to Bloomberg calculations based on public filings.
Sino-Forest in Trouble
Muddy Waters’ Carson Block shorted Sino-Forest Corp. accusing it of misstating financials, leading to the Chinese forestry company filing for bankruptcy protection. Block shot to fame in 2011 after his report on the firm, which lost over 70% in just a few days.
Herbalife Lessons
When things go wrong, shorting can be expensive as the investor has to cover the position if the stock rises. Ackman’s Pershing Square Capital Management had accused Los Angeles-based Herbalife Nutrition Ltd. of being an illegal operation that relied on outside distributors to recruit members with get-rich-quick schemes. He kicked off the campaign with a $1 billion bet against the company in 2012 and spent millions to investigate the business.
The short position put Ackman at odds with fellow billionaire, Carl Icahn, who became the company’s biggest holder. Icahn went on to defend the company, which sells weight-loss shakes and vitamins, and assailed Ackman — who exited his position by 2018. Herbalife shares more than doubled in the five years after he disclosed his short position.
A spokeswoman for Nikola declined to comment on the story. Bausch Health and Herbalife didn’t return a request for comment for this story.
–With assistance from Michael Msika.
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