Kotak Mahindra Group has stated that Hindenburg Research was never a client of Kotak Group’s K-India Opportunities Fund (KIOF) or Kotak Mahindra International Ltd (KMIL) and that they were unaware of any association between Hindenburg and their investors.
“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,” a KMIL spokesperson said on July 2.
KMIL also received confirmation and a declaration from the Fund’s investor that its investments were made as a principal and not on behalf of any other person, according to a statement from the group.
K-India Opportunities Fund (KIOF), a SEBI-registered foreign portfolio investor regulated by the Financial Services Commission of Mauritius, was established in 2013 to facilitate foreign investments 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,” the statement said.
Previously, Hindenburg Research alleged that Kotak Mahindra Bank and brokerage firms founded by Uday Kotak created and managed the offshore fund structure used by Hindenburg’s investor partner to short Adani stocks. The US-based short-seller questioned why SEBI did not mention 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 name ‘Kotak’ with the acronym ‘KMIL,'” Hindenburg said in an update.
Hindenburg suggested that SEBI’s omission of Kotak’s name might be intended to protect 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 added.
SEBI’s Show-Cause Notice to Hindenburg
Hindenburg Research received a show-cause notice from market regulator SEBI regarding its Adani Report, the firm announced in a blog post on July 2. The 46-page notice was delivered on June 27. The blog post explained that Hindenburg 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 reiterated that Hindenburg had adequately disclosed its short position on Adani shares, allowing readers to consider the potential for bias.
Hindenburg’s Allegations
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 Adani conglomerate termed the report malicious and baseless.
India’s Supreme Court ruled in January that the Adani Group would not face any further investigations beyond SEBI’s current scrutiny, offering relief to the conglomerate. SEBI has been investigating the Adani group for tax haven use and stock manipulation. The verdict suggested no heightened regulatory risk for Adani, and the court decided against altering disclosure rules for offshore funds despite Hindenburg’s claims.