Kotak Bank Created, Oversaw Offshore Fund Structure Used By Our Investor Partner To Bet Against Adani: US Short-Seller Hindenburg

Kotak Mahindra Bank, a prominent private sector lender and brokerage firm founded by Uday Kotak, created and oversaw the offshore fund structure used by an investor partner of US-based Hindenburg Research to short Adani stocks, according to an update from the short-seller on Tuesday (2 July).

Hindenburg Research raised questions about why the Securities and Exchange Board of India (SEBI) failed to mention Kotak Mahindra 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, Moneycontrol reported.

According to the Moneycontrol report, KMIL is Kotak Mahindra Investments Ltd.

Hindenburg further suggested that SEBI's omission of Kotak's name might be an attempt to shield Uday Kotak from scrutiny.

"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 alleged.

In a blog post on Tuesdya, Hindenburg Research said that it received a 46-page show cause notice on 27 June from SEBI regarding its Adani Report.

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 blog post reiterated that the US short-seller had adequately disclosed its short position on Adani shares, enabling readers to consider the potential for bias given that Hindenburg stood to benefit from a decline in Adani shares.

On 24 January 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 had dismissed the report as malicious and baseless.

The Supreme Court of India 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.

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