Unaware of US investor’s link to Hindenburg: Kotak

Kotak was responding to allegations that Hindenburg colluded with its client Kingdon Capital Management and used a Kotak group offshore fund to short Adani group shares last year.

Bengaluru: Kotak Mahindra Bank, on Tuesday, said that Hindenburg Research has never been a client of the bank or its K India Opportunities Fund (KIOF), and that it was never aware that the American research and short selling firm was partners with any of the investors in the fund.

This comes after explosive revelations in the early hours of the day by Hindenburg that Kotak created and oversaw an offshore fund used, known as Kingdon Capital, to profit from a plunge in Adani shares that followed a damning Hindenburg report in January 2023.

The latest report by Hindenburg was in response to a show-cause notice by the Securities and Exchange Board of India, which the US firm termed as attempted intimidation, and asked why the market regulator did not name Kotak. Shares of Kotak Bank closed 2.16% down on the Bombay Stock Exchange, its market cap declining by Rs 7,777 crore.

While the January 2023 report led to a $153 billion loss of market value of Adani Group companies, Hindenburg said on early Tuesday that it itself made only $4.1 million from ‘one investor relationship’ and a $31,000 profit from its own shorting of Adani US bonds. That investor was Kingdon.

Since the January 2023 report, shares of Adani group companies have recovered most of the market value and are now $30 billion short of pre-Hindenburg levels, as per Bloomberg.

In a statement on Tuesday evening, Kotak Mahindra Bank denied any allegation of acting in collusion with Hindenburg or Kingdon and said that KIOF acted in full compliance with the law. It said that Kingdon never disclosed that it had Hindenburg as an investing partner.

The US short-seller said that it had received the show-cause notice by SEBI on June 27 for ‘unfair trade practices. The notice charged Hindenburg of “deliberately sensationalising and distorting certain facts” in the January 2023 report

Hindenburg said while SEBI was seeking to claim jurisdiction over a US-based investor, the regulator’s notice “conspicuously failed to name the party that has an actual tie to India: Kotak Bank,” which created and oversaw the offshore fund structure used by Hindenburg’s investor partner to bet against Adani. The regulator “masked the “Kotak” name with the acronym “KMIL”,” it added.

KMIL refers to Kotak Mahindra Investments Ltd, the asset management company.

While KMIL stated that Hindenburg was “never” its client, SEBI’s show cause notice said that Hindenburg’s client Kingdon Capital Management had invested in KIOF, which created positions in Adani Enterprises Ltd prior to the report release and “a total profit of Rs 183.24 crore ($22.25 million)” thereafter.

A show-cause notice is often a precursor to formal legal action that may include imposing financial penalties and barring participation in the Indian capital market. SEBI has given Hindenburg 21 days to respond to its allegations.

In its 46-page notice, SEBI alleged a relationship between Hindenburg and Kingdon began in the autumn of 2022, months before the damning report was released. Kingdon created positions in Adani stocks to benefit from their decline when the report was released.