What Does The Panel Report Say About The Adani-Hindenburg Issue?

The Supreme Court on Friday (May 19) made public the report of the court-appointed expert panel in the Hindenburg-Adani row case.

While the Securities Exchange Board of India (SEBI) is yet to submit its report, the expert panel in its report disclosed that SEBI has been investigating the ownership of 13 ¡°opaque¡± overseas entities related to Adani since October 2020.

Hindustan Times

What Does The Report Say?

In a report dated May 6, The committee gave the Supreme Court a detailed assessment of the situation which could have led to volatility in the securities market due to the Hindenburg-Adani row. The committee also looked at two other issues ¡ª investor awareness and whether there was any regulatory failure that led to the conclusions drawn by the Hindenburg report.

ON MARKET VOLATILITY: On the first issue, the report says that while ¡°there was certainly high volatility in Adani stocks after publication of the Hindenburg report¡±, the market as a whole was not unduly volatile.

¡°The mitigating measures from the Adani groups, such as paring down the debt secured by encumbrances on their shareholding, infusion of fresh investment into Adani stocks by way of investment of nearly USD 2 billion by a private equity investor, and the like, built confidence in the stocks,¡± the report said.

It added that ¡°the market has re-priced and re-assessed the Adani stocks. While they may not have returned to the pre-January 24, 2023 levels, they are stable at the newly re-priced level.¡±

ON INVESTOR AWARENESS: While the expert panel was largely in agreement with SEBI¡¯s steps on ensuring investors are making informed decisions, the report also raised a question on whether there is too much information for the average investor.

¡°There is an urgent need to introspect and take a hard close. Look at whether there is a surfeit of disclosure is that loads the investors with so much data and noise that the real content necessary to make an informed decision may be lost,¡± the report stated.

ON REGULATORY FAILURE: The expert panel said that SEBI is looking into whether Adani has floated regulations in three aspects.

*Minimum public shareholding: Sebi regulations require a publicly listed company to have a minimum of 25% of its shares to be held by the public. To examine whether Adani has flouted this rule, SEBI will have to look into the ownership of certain portfolio investors.

¡°The issue of minimum public shareholding is dependent on whether 13 overseas entities including 12 foreign portfolio investors are compliant with disclosure of their beneficial owners as stipulated by law,¡± the expert panel report stated.

Significantly, the report said that SEBI has been investigating the ownership of the 13 overseas entities since October 2020.

*Related party transactions: SEBI (Listing Obligations and Disclosure Requirements) require transactions by listed companies with related parties that are intended and purpose to benefit related party to be disclosed. The norms prohibit certain transactions.

The expert panel said that it cannot express a view on this since SEBI has identified 13 specific transactions which are being investigated.

¡°The committee would, therefore, be unable to comment without further input, except to say, the investigations must be completed in a time bound manner in accordance with law,¡± the report stated.

*Price manipulation: On the issue of whether Adani had manipulated its stock price, the expert panel said that ¡°it would not be possible to return a finding of regulatory failure on this count¡±.

This is because despite SEBI¡¯s active surveillance framework to take notice of high price and volume movements to consider if the integrity of the natural price discovery process has been manipulated, no such incident has been found.

¡°In the case of Adani stocks, 849 alerts were generated by the system, and were considered by stock exchanges, resulting in four reports to SEBI ¡ª two well prior to the Hindenburg report and two after January 24, 2023.

The report sets out the details of analyses across multiple ¡°patches¡± (periods of time). ¡°In a nutshell, no pattern of artificial trading or ¡°wash trades¡± among the same parties multiple times was found,¡± the report said.

Who Were The Part Of Expert Panel?

The six-member expert committee appointed on March 2 was headed by former Supreme Court judge Justice Abhay Manohar Sapre (Retd), and comprised the former chairman of State Bank of India (SBI) O P Bhatt, former Bombay High Court judge Justice J P Devadhar (Retd), Infosys co-founder Nandan Nilekani, former chairman of a Infosys K V Kamath, and securities lawyer Somasekhar Sundaresan.