Vedanta has so many red flags, it will take people some time to digest: Viceroy's Perring

Mint

3 days ago

Fraser Perring, a British short-seller and founder of Viceroy Research, caused a stir in the markets with a critical report on Anil Agarwal's Vedanta Resources Ltd. The report, published during market hours, saw Vedanta shares tumble before they partially recouped their losses to end 3.38% lower than the previous day's close. In a telephonic interview from the UK with Mint's Varun Sood and Nehal Chaliawala, Perring said there is 'more to come", adding that 'there are so many red flags" that 'it will take people some time to digest this".
Vedanta has denied the allegations.
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Perring and Viceroy Research have earned a reputation for being taken seriously in the financial world, largely due to their role in exposing Wirecard, the German payment processor and financial services provider that was embroiled in one of the biggest financial scandals in post-war Germany.
Edited Excerpts:
We've taken a short position personally here (Vedanta Resources Ltd or VRL). We opened short positions on the bonds of VRL about three to four months back. I can't remember exactly.
We never disclose the size of our short, but it's a high-conviction short.
It's through prime brokers. I don't know where the counterparty is.
Not necessarily, we share the reports, but when we have a high-conviction idea that we may or may not publish, and we take a position that we've been short here on the bonds.
Three key co-founders are generally idea-driven, and then we contract in or work with people who have a better skill set in certain areas, because it would be misleading to say that we all know everything.
We conduct extensive on-the-ground research, examining what Vedanta has said over the last few months. So, timing-wise, the conception or thought process behind Vedanta was about nine months, give or take, from memory. It was September or October of last year. Yeah. What drew our attention was that key events were reported in local newspapers.
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Still, the company didn't acknowledge this, as evidenced by court cases or by increasing the value of assets, even though they were either not operational or poorly performing. It prompted us to examine some of the assertions Vedanta had made about its projects and its commitment to them. We found that many of Vedanta's promises were never actually fulfilled, such as its announcements about entering the semiconductor and nuclear industries. All of this never materialised. All it's doing is refinancing debt or enabling the payment of dividends. It's crazy.
Well, for Vedanta itself, it's to raise cash, promote the share price and enrich the majority shareholders at the expense of the minority shareholders. The question really should be, how is it allowed to go on where real investors are having their investment jeopardised by a financial management system that's going to, if they continue in this way, jeopardise all the shareholders.
In double-digits. Maybe 15 or 20 people. We focus on people with skill sets to almost try and disprove our thesis, because from a research perspective, it's better to try and prove yourself wrong as a short seller, because your piece will be more solid. But you are also testing the facts more, rather than assuming you're right.
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No journalists. Predominantly forensic accountants, people in the commodities or infrastructure sector, things like that, getting their views … testing out whether what we believe is happening is correct or whether we are wrong.
We wouldn't expect a strong initial reaction. In reality, it will take people some time to digest this. There are so many red flags in this report that I don't think it'd be appreciated until people get to the bottom of it, if I may.
It's a combination of all three, as you'll see in our follow-up, depending on how transparent Vedanta wants to be. Obviously, we don't give everything at once. There's more to come.
We will be sharing some anecdotes, but we don't want to spoil this surprise. We've spent a considerable amount of time on this report, making it one of the few we intend to produce, which offers in-depth coverage of the company, requiring transparency. Obviously, the company needs to be allowed to respond fully, rather than with a childish response. And if that changes, then we will publish more details.
There will be a series of reports.
I am yet to find where the last regulator made things challenging. It happened during the Wirecard episode in Germany, with which we were also heavily involved. There are enough short sellers out there and where they still do damn good work, and our experience of regulators, particularly over the two and a half years, has been, if I'm being really honest, quite positive … we have assisted with investigations into fraudulent companies on three continents. Yes, they don't appreciate the work that we do to the level they should, but they have also been very respectful. They have quite clearly embraced reports, and you can see that out of the charges that were brought by the work.
According to the statement today, all the information that we published is known. That's poppycock. That's what companies rely on as a defence, because they don't want to have to explain how bad it is. We have seen that, all over the world, there is a complete denial. It's malicious. That we profit from being short.
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But in reality, they've been profiting for years, completely underrepresenting risks and misstating the performance of assets, appreciating the value of assets, falsely capitalising projects, and that's even down to amortising a large fine, which is in complete contradiction to accounting rules. There are no coercive or malicious events surrounding the time of our report. It's just that it was ready when it was, and the company, irrespective of our timing. So let's ignore the timing. There's nothing to see there. Why don't they respond fully point by point?
Ultimately, the end goal is for minority shareholders to protect themselves. The stakeholders, other than those implementing this strategy, have been misled and should be in uproar. Because, if this continues, the parasite, as we refer to it, is just a financial extraction.
If we believe that we wouldn't do it. One thing we do is highlight transparency. We published on Wirecard. It's about transparency, which is lacking in the public markets, where companies are too willing to highlight the positives and overlook what's happening, not necessarily behind the scenes, but the things that could impact them. And accountability is key, but more importantly, we're advocating for greater transparency from companies, particularly those that perpetually spin plates of prosperity versus the reality of their underlying performance.
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In the case of Nate (Nathan Anderson, founder of Hindenburg), he attempted to bring transparency to shareholders (at Adani). I'm sure that the corporate governance is either better managed at Adani now, or at least people believe it is. Suppose it has improved, kudos. The reality is also that the conviction in Adani Enterprises is 30% less than when Hindenburg published the report. It depends on what investors want to believe. We've held on to some shorts for two years.
We'd welcome an invitation if you'd like that as your headline. We'd dial in. Yeah. We are more than willing to have anyone with an invite ask questions.