Adani-Hindenburg Case: Kotak Bank created, oversaw fund used to bet against Adani, claims US short-seller

Kotak Mahindra Bank and the brokerage firms founded by Uday Kotak created and oversaw the offshore fund structure used by the investor partner of US-based short-seller Hindenburg to bet against Adani group stocks, Hindenburg Research said.

In a blog post, Hindenburg Research commented on the show-cause notice it received from Indian capital markets regulator Securities & Exchange Board of India (SEBI) over its short bet against Adani Group.

Questioning why Sebi failed to take Kotak’s name, the short-seller said, “While SEBI seemingly tied itself in knots to claim jurisdiction over us, its notice conspicuously failed to name the party that has an actual tie to India: Kotak Bank, one of India’s largest banks and brokerage firms founded by Uday Kotak, which created and oversaw the offshore fund structure used by our investor partner to bet against Adani. Instead it simply named the K-India Opportunities fund and masked the “Kotak” name with the acronym “KMIL”.

Hindenburg also noted that Uday Kotak, founder of Kotak Mahindra Bank, led SEBI’s 2017 Committee on Corporate Governance.

“We suspect SEBI’s lack of mention of Kotak or any other Kotak board member may be meant to protect yet another powerful Indian businessman from the prospect of scrutiny, a role SEBI seems to embrace,” Hindenburg said.

Sebi’s 46-page show cause notice was sent to Hindenburg on June 27, which the short-seller characterised as ‘attempted intimidation’.

Hindenburg said it was short on Adani shares ‘through a deal with an investor partner who was indirectly short Adani derivatives through a non-Indian, offshore fund structure.’

Hindenburg had last year published a report alleging Adani Group was “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.” The report led to a massive $150 billion rout in Adani group stocks.

In a statement, Kotak Mahindra Bank Ltd spokesperson said Hindenburg was never a client nor an investor in the K- India Opportunities Fund Ltd. (KIOF) and Kotak Mahindra International Limited (KMIL).

 “Kotak Mahindra International Limited (KMIL) and KIOF unequivocally state that Hindenburg has never been a client of the firm nor has it ever been an investor in the Fund. The Fund was never aware that Hindenburg was a partner of any of its investors. KMIL has also received a confirmation and declaration from the Fund’s investor that its investments were made as a principal and not on behalf of any other person,” the statement from the lender said.

“K- India Opportunities Fund Ltd. (KIOF) is a SEBI registered Foreign Portfolio Investor and is regulated by the Financial Services Commission of Mauritius. The Fund was established in 2013 to enable foreign clients to invest in India. The Fund follows due KYC procedures while onboarding clients and all its investments are made in accordance with all applicable laws. We have cooperated with regulators in relation to our operations and continue to do so,” it added.