Hindenburg’s charges pose challenge to Indian mkts

What experts said…

♦ Hindenburg’s claims as a red herring, aimed at pressuring Sebi

♦ Sebi may consider global regulatory action against Hindenburg

Mumbai: Experts believe that the recent Hindenburg allegations against Sebi, the capital markets regulator, have escalated the issue beyond just a dispute between Hindenburg and a single corporate entity. It is now seen as a challenge to India’s entire capital markets system, its regulator, and the government.

Speaking to Bizz Buzz, Arun Kejriwal, a market expert and Founder of KRIS, said, “The accusations against the Sebi Chairperson and the subsequent clarification issued by her have significantly raised the issue many notches. This is no longer just about one corporate house; it’s about the integrity of India’s capital markets system, its regulation, and the government itself.” He added that fast-paced responses from all stakeholders can be expected within the next two days.

According to Hindenberg’s allegations, Sebi Chairperson Madhabi Buch holds 99 per cent stake in an Indian consulting firm called Agora Advisory, where her husband, Dhaval Buch, serves as a director. According to the short-seller, this entity reported $261,000 in consulting revenue in 2022, which is 4.4 times her disclosed salary at Sebi.

Hindenburg also noted that despite lacking experience in the field, Dhaval Buch, the husband of Sebi Chairperson, joined Blackstone, a major global private equity firm and significant investor in India, as a ‘Senior Advisor’ in July 2019, according to his LinkedIn profile.

Blackstone has been one of the largest investors and sponsors of REITS (Real estate investment trusts), a nascent asset class in India. While Dhaval Buch was a Senior Advisor and his wife was a Sebi official, Blackstone sponsored Mindspace and Nexus Select Trust, India’s second and fourth REITs to receive Sebi approval for a public IPO.

Hindenburg alleged that during industry conferences, Sebi Chairperson promoted REITs as her ‘favorite products for the future’ but failed to disclose that Blackstone, which her husband advises, stands to benefit significantly from this asset class.

“I do feel that it is a red herring. This must not deter Sebi from pursuing its case against the short-selling fund,” a professor at a business school of India who does not wish to be named said Hindenburg is a short seller, and benefits from a stock falling in price. By their earlier white paper on Adani, they caused the Adani stock price to fall which benefitted them. As a regulator, Sebi has full right to examine the veracity of their claims. After Sebi issued a show cause notice, they attacked the Sebi Chairperson personally. This may be their pressure tactic to deter Sebi from examining their short selling tactics further, he said.

It is premature for anyone to pass a judgment on the Sebi chief. Hindenburg does not seem to have produced any solid evidence of any wrongdoing. The Buchs have provided full disclosures now, and before, he added.

A source familiar with the development said that Sebi may approach a global stocks market regulator against Hindenburg, though the details are yet to be known.