When Hindenburg Research revealed a short position in Adani Group last week, some U.S. investors said they were intrigued about the actual mechanics of its trade, because Indian securities rules make it hard for foreigners bet against companies there.
Hindenburg declined to comment to Reuters on the method it used to place its bets against Adani. Adani Group and the stock market regulator the Securities and Exchange Board of India did not respond to a request for comment.Typically, investors who want to bet that the company’s stock will fall borrow shares in the market and sell them, hoping to buy them back at a lower price, in a practice called short selling.
With the Adani Group, there are added complications: the shareholding is concentrated in the hands of the Adani family and its shares do not trade on exchanges abroad. “Once these things begin there are others who could be looking,” said Amit Tandon, managing director of proxy and governance firm Institutional Investor Advisory Services in India.Reuters could not learn details of Hindenburg’s trades. But several bankers familiar with trading in Indian securities said the more profitable piece of the short seller’s bet would likely lie in the derivative trades it had placed.
A more profitable way, these bankers said, would be to place the bet via participatory notes, or P-notes, which are lightly regulated offshore derivatives based off shares of Indian companies.
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