‘Kotak created offshore fund’

#New Delhi
Billionaire banker Uday Kotak founded bank and brokerage created and oversaw an offshore fund used by an unnamed investor to profit from a plunge in Adani shares that followed a damning Hindenburg report, the US short-seller said.

Hindenburg Research, which in a January 2023 report alleged stock market manipulations and accounting fraud at the Adani group, said it has received a show cause notice from the Indian markets regulator Securities and Exchange Board of India’s (Sebi) over gains made from betting on the conglomerate’s shares.

The US short-seller said it had disclosed that it had bets against the group, adding that its gains were only over USD 4 million.

While Kotak Mahindra Investments Ltd (KMIL) — the asset management company said to have created the offshore fund — stated that Hindenburg was “never” its client, Sebi’s show cause notice cited chats between Kingdon Capital – a client of the US short-seller who was privy to the report prior to its release – and Kotak fund executives.

Kingdon Capital subscribed to shares of KIOF Class F, an FPI of KMIL, Sebi said adding that KIOF built short positions on 8.5 lakh shares in futures of Adani Enterprises Ltd and squared off this post report release to make “a total profit of Rs 183.24 crore (USD 22.25 million)”.

“K-India Opportunities Fund Ltd (KIOF) is a Sebi-registered foreign portfolio investor (FPI) and is regulated by the Financial Services Commission of Mauritius,” a KMIL spokesperson said.

“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 spokesperson went on to state that “Hindenburg has never been a client” of KMIL or KIOF.

“The Fund was never aware that Hindenburg was a partner of any of its investors. KMIL has also received a confirmation and declaration from the Fund’s investor that its investments were made as a principal and not on behalf of any other person.” Calling the Sebi show cause notice as attempted intimidation, Hindenburg asked why the market regulator did not name Kotak.

Sebi’s 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,” Hindenburg said.

Instead, the regulator simply named the K-India Opportunities fund and “masked the ‘Kotak’ name with the acronym ‘KMIL’,” it added.

The January 2023 report, which led to a rout in Adani shares that at one point saw more than USD 150 billion being wiped out from the market value of the 10 listed companies, earned a gross revenue of about USD 4.1 million through gains related short positions created from “one investor relationship” and about “USD 31,000 through our own short of Adani US bonds,” Hindenburg said. It did not, however, name the investor. Sebi did not immediately offer any comments on the Hindenburg claims.
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“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.

The US short-seller said it received a 46-page show cause notice from Sebi on June 27.

On January 24, 2023, Hindenburg published a report alleging stock manipulation and accounting fraud at the Adani group, calling it “the largest con in corporate history”, ahead of a proposed Rs 20,000 crore share sale by Adani Enterprises – the group’s flagship firm.PTI

Hindenburg calls notice ‘nonsense’
#New Delhi
India’s markets regulator SEBI has slapped Hindenburg Research with a show cause notice for alleged “unfair trade practices” in its 2023 broadside against the Adani Group – a move that the US firm termed as ‘nonsense’ and an attempt to ‘silence and intimidate’ those exposing corruption. The Securities and Exchange Board of India (SEBI) on June 26 show cause notice charged Hindenburg with “deliberately sensationalising and distorting certain facts” in the damning January 2023 report on the Adani group as well as working with a New York hedge fund to make its bet. Hindenburg criticised the regulator for not focusing its investigation into the January 2023 report on the conglomerate creating “a vast network of offshore shell entities” and moving billions of dollars “surreptitiously” into and out of Adani public and private entities.

Kotak Bank shares decline over 2%
#New Delhi
Shares of Kotak Mahindra Bank declined over 2% on Tuesday, wiping out Rs 7,777.33 crore from its market capitalisation as the company’s name cropped up in the Adani-Hindenburg row.
The stock went lower by 2.16% to settle at Rs 1,769.60 apiece on the BSE. During the day, it tumbled 3.98% to Rs 1,736.65. On the NSE, it declined 2.12% to Rs 1,769.60 per share. The company’s market valuation eroded by Rs 7,777.33 crore to Rs 3,51,787.86 crore.