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Hindenburg Research

Hindenburg Research, is a financial research firm, which specializes in “forensic financial research.” In layman’s terms, it looks for corruption or fraud in the business world, such as accounting irregularities, illegal or unethical practices, mismanagement and undisclosed issues.

Named after the 1937 Hindenburg Disaster, which the firm characterize as a human-made avoidable disaster, the firm says it looks for similar disasters in financial markets, before the companies could lure in more unsuspecting victims.

Hindenburg Research prepares its investigation report on a target company in six or more months by going through its public records and internal corporate documents, as well as talking to its employees.

The report is then circulated to Hindenburg's limited partners, who, together with Hindenburg, take a short position in the target company. Afterward, if the price of a company’s stock or bonds falls because of the negative attention from the report, Hindenburg can profit. This process is known as Short Selling.

Here's how this works: The short seller borrows shares and immediately sells them. The short seller then expects the price to decrease, after which the seller can profit by purchasing the shares to return to the lender.

Example:

Imagine a trader who believes that XYZ stock—currently trading at $50—will decline in price in the next three months. They borrow 100 shares and sell them to another investor.

The trader is now “short” 100 shares since they sold something that they did not own but had borrowed. The short sale was only made possible by borrowing the shares, which may not always be available if the stock is already heavily shorted by other traders.

A week later, the company whose shares were shorted reports dismal financial results for the quarter, and the stock falls to $40. The trader decides to close the short position and buys 100 shares for $40 on the open market to replace the borrowed shares.

The trader’s profit on the short sale, excluding commissions and interest on the margin account, is $1,000 ($50 - $40 = $10 × 100 shares = $1,000).

Short selling, is essentially betting that a company’s stock will fall. It is considered a high risk investment strategy. Unlike traditional trading in which the investor buys stock and hopes that its price will rise, short sellers make a profit when stock falls. If the prices fall on the expected lines, the short sellers make a killing.

Such short sellers have been criticized for unfairly pushing down prices of stocks with potentially unfounded allegations. But proponents also call them a healthy part of a stock market, keeping stock prices in check and preventing them from running too high.

Hindenburg has made similar “short” bets against the companies, it has published unflattering reports on.

Sources:

https://time.com/6251840/hindenburg-research-explained/

https://www.business-standard.com/article/current-affairs/hindenburg-research-all-you-need-to-know-about-us-based-investment-firm-123012600203_1.html

https://www.moneycontrol.com/news/trends/adani-hindenburg-row-what-is-short-selling-and-why-is-it-in-news-10006231.html

https://en.wikipedia.org/wiki/Hindenburg_Research

https://en.wikipedia.org/wiki/Short_(finance)

https://www.investopedia.com/terms/s/shortselling.asp#:~:text=Short%20selling%20occurs%20when%20an,the%20price%20to%20go%20up.

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FPO: Follow On Public Offer

FPO (Follow on Public Offer) is a process by which a company, already listed on an exchange, issues new shares to the investors or the existing shareholders. FPO is used by companies to diversify their equity base.

A company uses FPO after it has gone through the process of an IPO and decides to make more of its shares available to the public or to raise capital to expand or pay off debt.

A company does it in two ways:

Dilutive FPO: In dilutive FPO, the company issues an additional number of shares in the market for the public to buy however the value of the company remains the same. This reduces the price of shares and automatically reduces the earnings per share also.

Non-dilutive FPO: Non-dilutive IPO takes place when the larger shareholders of the company like the board of directors or founders sell their privately held shares in the market. This technique does not increase the number of shares for the company, just the number of shares available for the public increases. Unlike dilutive FPO, since this method is not doing anything to the number of shares of the company, it does not do anything to the company’s EPS.

At-the-Market FPO: In this type of FPO, companies raise funds based on the real-time price of the shares. If the company that is issuing the fresh shares through FPO witnesses the fall in the share price, it can pull out from offering the shares to the public. Because of this At-the-Market FPO is also called controlled equity distributions.

The FPO issue price is usually lower than the prevailing market price to attract more subscribers to invest in FPO. Lower demand for the listed shares eventually does bring down the market price and levels it to the FPO issue price.

FPO is a cheaper and safer option as compared to an IPO. When it comes to an FPO, you already have an idea about the company, the business, management strategy, financials and all other parameters.

Sources:

https://economictimes.indiatimes.com/definition/fpo

https://groww.in/p/difference-between-ipo-and-fpo

https://www.zeebiz.com/market-news/news-fpo-full-form-vs-ipo-types-what-is-dilutive-nondilutive-follow-on-public-offer-why-does-a-company-need-it-latest-news-update-219388

https://www.indiainfoline.com/knowledge-center/ipo/what-is-fpo