Hindenburg slams Sebi notice as nonsense, bid to intimidate exposé of ’corruption by most powerful individuals in India’

Hindenburg Research has slammed a show-cause notice from India’s capital market regulator Securities and Exchange Board of India (Sebi) outlining suspected violations over its short bet against Adani Group. It said the regulator's notice was an "attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India."

Last year, Hindenburg published a report alleging Adani Group was “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades,” triggering a massive $150 billion rout in Adani stocks.

Characterizing the Sebi’s ‘show cause’ notice as attempted intimidation, Hindenburg wrote in a blog post that the regulator had made the “nebulous allegation” that its report contained misrepresentations and inaccurate statements meant to mislead readers. Hindenburg alleged in its defence that the regulator failed to address the alleged fraud contained in the short-seller's report.

“..we think it is nonsense, concocted to serve a pre-ordained purpose: an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India,” Hindenburg said.

Sebi’s 46-page show cause notice outlines an explanation of Hindenburg’s relationship with an investor that expressed a short position in Adani.

In its response, Hindenburg said it had one investor partner, and net of costs, it may “barely come out above breakeven” on its Adani short.

The short-seller said it made $4.1 million in gross revenue through “gains related to Adani shorts from that investor relationship” and just $31,000 through its short position of Adani’s US bonds. Hindenburg did not name the investor partner.

Hindenburg drew attention to the fact that it was a U.S.-based research firm “with zero Indian entities, employees, consultants or operations,” adding, the notice was designed to imply that its “legal and disclosed investment stance was something secret or insidious, or to advance novel legal arguments claiming jurisdiction over us.”

The short-seller said the regulator claimed that the disclaimers in its report were misleading because we were “indirectly participating in the Indian securities market,” and, therefore, were short Adani.

Hindenburg said there was no mystery in its investments as “virtually everyone on earth knew we were short Adani because we prominently and repeatedly disclosed it.”

It further revealed that Kotak Mahindra Bank created and oversaw an offshore fund structure that was used by its “investor partner” to bet against the conglomerate.

“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”, it said.

The short-seller said it suspects 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.”

Sebi did not respond to a request for a comment, Bloomberg reported, adding an Adani Group representative did not immediately offer a comment. Livemint could not reach out to Kotak for a response.

(With inputs from Agencies)