Nomura Faces $43 Million Lawsuit From Elara Fund Over Adani Bets

Introduction: Adani-Hindenburg Fallout Hits London Courts

The financial aftershocks of the Hindenburg Research report on the Adani Group continue to reverberate, with a new legal battle unfolding in a London courtroom. Tokyo-based financial giant Nomura Holdings Inc. is facing a lawsuit from Oyster Bay Fund Ltd., an investment fund owned by Elara Capital Plc. The fund alleges that Nomura's urgent cash demand and subsequent sale of collateralized Adani Group shares resulted in losses amounting to $13 million. This case highlights the significant counterparty risks that emerged for global financial institutions following the extreme volatility in Adani stocks in early 2023.

The Core of the Dispute

According to High Court filings, the dispute centers on loans provided by Nomura to the Oyster Bay Fund. The fund used this leverage to make substantial bets on two Adani Group companies: Adani Enterprises Ltd. and Adani Ports & Special Economic Zone Ltd., utilizing financial instruments known as total return swaps. These swaps allow investors to gain exposure to an asset's performance without owning it directly, often using borrowed funds to amplify potential returns. When the Hindenburg report was published in January 2023, accusing the Adani empire of 'brazen stock manipulation,' the value of these shares plummeted.

Elara's fund claims that in the ensuing market chaos, Nomura demanded $105 million in cash to cover the devalued collateral. The fund alleges that Nomura then breached an agreed-upon repayment plan by proceeding to sell the pledged Adani shares. This forced sale, occurring at a time of peak volatility and depressed prices, allegedly led directly to the $13 million loss. Nomura has firmly denied any wrongdoing, stating its intention to 'vigorously defend' itself against the claims.

Hindenburg Report as the Catalyst

The lawsuit is a direct consequence of the market turmoil ignited by Hindenburg's nearly 100-page report. The short-seller's allegations at one point wiped out over $150 billion in market value from Adani Group's listed entities. The report not only accused the conglomerate of accounting fraud but also specifically implicated Elara Capital, suggesting some of its funds were acting as fronts for Adani promoters to bypass Indian securities laws regarding minimum public shareholding. Gautam Adani and the Adani Group have consistently rejected the report's findings as 'baseless' and a 'calculated securities fraud.'

Nomura's Reaction and Risk Management

The court filings provide insight into Nomura's internal response to the crisis. The bank's senior leadership in Asia was reportedly alarmed by the volatility, particularly given the institution's prior experience with the collapse of Archegos Capital Management, which had cost Nomura nearly $1 billion in 2021 from similar leveraged trades. Within days of the Hindenburg report, top Nomura officials, including Ajay Jain, Corrinne Teo, Charles Myong, and Priyanka Khurana, convened a call with Elara CEO Raj Bhatt to demand repayment.

An email from Khurana, cited in the bank's defense, stated, 'Given the huge volatility in the portfolio stocks, Nomura's credit is very uncomfortable with the leverage on the portfolio and would like to withdraw the same.' This communication underscores the bank's urgent move to de-risk its exposure to the Adani-linked portfolio.

Key Parties in the Dispute

To clarify the roles of the entities involved, the following table summarizes their positions in the ongoing legal and financial saga.

Regulatory Scrutiny and Broader Implications

The Hindenburg report triggered extensive regulatory probes in India, led by the Securities and Exchange Board of India (SEBI). These investigations included a review of Elara's funds and their potential ties to the Adani Group. While SEBI's final report in September stated that evidence was insufficient to support fraud claims related to third-party transactions, the matter brought intense scrutiny upon offshore funds investing in Indian markets.

The Nomura-Elara lawsuit serves as a case study in the risks associated with leveraged financing in volatile markets. It demonstrates how quickly a short-seller report can cascade through the global financial system, forcing banks to make rapid decisions about their exposure and potentially leading to protracted legal disputes. The outcome will be closely watched by financial institutions that provide structured products and leverage to hedge funds and family offices worldwide.

Conclusion

The legal battle in London between Nomura and Elara's Oyster Bay Fund is a significant aftershock of the Adani-Hindenburg affair. It moves the controversy from the sphere of market speculation and regulatory investigation into the realm of contractual law and financial liability. The case brings the complex web of offshore funds, total return swaps, and institutional risk management under a legal microscope, with the final judgment likely to set important precedents for how lenders and borrowers navigate extreme market events.