Kotak bank created and oversaw offshore fund that partner used to short Adani stocks, says Hindenburg

Adani Hindenburg news: Kotak group created offshore fund that oversaw shorts on Adani stocks executed by Hindenburg partner, says report

Kotak Mahindra Bank, a private sector lender and brokerage firms founded by Uday Kotak, created and oversaw the offshore fund structure used by the investor partner of US-based Hindenburg to short Adani stocks, said the research firm in an update on July 2.

The US-based short seller questioned why Sebi failed to name Kotak bank in its observations. “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 said.

(KMIL is Kotak Mahindra Investments Ltd)

Hindenburg alleged that Sebi’s omission of Kotak’s name may be meant to protect the businessman from scrutiny.

Also Read | Adani AGM 2024: 'Hindenburg incident was designed to defame us,' Gautam Adani tells shareholders

"Uday Kotak, founder of the bank, personally 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.

In response to a Moneycontrol query, Kotak Mahindra group said Hindenburg was never a client of the two entities associated with K- India Opportunities Fund (KIOF) and Kotak Mahindra International Limited (KMIL) and that the fund was not aware that Hindenburg was a partner of any of its investors.

Read: Kotak Group Fund says it wasn't aware that Hindenburg was partner of its investors

US-based Hindenburg Research received a show cause notice from market regulator SEBI regarding its Adani Report, the firm said in a blog post on July 2.

The 46-page show cause notice was delivered on June 27, said Hindenburg. The blog post said that the research firm 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'.

The post revealing Sebi notice reiterates its position that Hindenburg had adequately disclosed that it was short on Adani shares, 'so readers could weigh the potential for bias given that we stood to benefit from a decline in Adani shares.'

Also Read | Adani Enterprises stock erases over $30-bn losses spurred by Hindenburg report

On January 24, 2023, Hindenburg Research published a report accusing Adani group companies of stock manipulation and accounting fraud, ahead of a proposed Rs 20,000 crore share sale by Adani Enterprises. The conglomerate termed the report as malicious and baseless.

Meanwhile, India's Supreme Court ruled in January that the Adani Group won't face any further investigations beyond Sebi's current scrutiny, offering relief to the conglomerate. Sebi has been probing the Adani group for tax haven use and stock manipulation. The verdict suggested no heightened regulatory risk for Adani. The court also decided against altering disclosure rules for offshore funds, despite Hindenburg's claims.