Kotak Group Fund on Hindenburg Claim: Wasn’t aware of Hindenburg Link to Investor

The Kotak Mahindra group stated that Hindenburg Research was never a customer of the K- India Opportunities Fund (KIOF) or Kotak Mahindra International Ltd (KMIL) and that the fund was unaware of the US short seller’s partnership with any of its investors.

KMIL has also acquired confirmation and declaration from the Fund’s investor that its contributions were made as a principal and not on behalf of anyone else, according to a group statement.

The K-India Opportunities Fund (KIOF) is a foreign portfolio investor registered with the Sebi and regulated by the Financial Services Commission of Mauritius, according to the statement.

“The Fund was founded in 2013 to allow overseas clients to invest in India. The Fund conducts proper KYC procedures when onboarding clients, and all of its investments are made in line with all applicable regulations. We have cooperated with regulators on our activities and will continue to do so,” the statement stated.

Earlier, Hindenburg stated that Kotak Mahindra Bank and brokerage businesses founded by Uday Kotak designed and monitored the offshore fund structure utilized by Hindenburg’s investor partner to short Adani stocks.

The US-based short seller questioned why Sebi did not mention Kotak Bank in its findings.

“While Sebi appeared to tie itself in knots to claim jurisdiction over us, the notice pointedly failed to name the party with a genuine tie to India: Kotak Bank, one of India’s leading banks and brokerage businesses founded by Uday Kotak, developed and managed the offshore fund structure used by our investor partner to gamble against Adani. Instead, it merely dubbed the K-India Opportunities Fund and disguised the ‘Kotak’ name with the abbreviation ‘KMIL’,” Hindenburg stated in an update.

Hindenburg claimed that Sebi’s suppression of Kotak’s name was intended to shield the businessman from investigation.

“The bank’s founder, Uday Kotak, personally led SEBI’s 2017 Committee on Corporate Governance. We assume SEBI’s failure to include Kotak or any other Kotak board member is intended to shield yet another strong Indian businessman from criticism, a role SEBI seems to embrace,” Hindenburg stated.

Sebi show cause notice to Hindenburg

Hindenburg Research got a show cause notice from market regulator SEBI on its Adani Report, according to a blog post published on July 2.

The 46-page show cause notice was delivered on June 27, according to Hindenburg. According to the blog post, the business was short Adani shares ‘via a deal with an investor partner who was indirectly short Adani derivatives through a non-Indian, offshore fund structure’.

The post outlining the Sebi notice reiterates its argument that Hindenburg had fully disclosed that it was short Adani shares,’ so readers may consider the possibility for bias given that we stood to benefit from a fall in Adani shares.’

Hindenburg Allegations

Hindenburg Research produced a report on January 24, 2023, alleging Adani Group companies of stock manipulation and fraud of accounting, ahead of Adani Enterprises’ proposed Rs. 20,000 crore share sale. The corporation described the report as nasty and unfounded.

Meanwhile, India’s Supreme Court declared that the Adani Group will not face any more inquiries beyond Sebi’s present probe, providing respite to the conglomerate, in January. Sebi has been investigating the Adani group for tax evasion and stock manipulation. The ruling indicated that Adani faces no increased regulatory risk. Despite Hindenburg’s allegations, the court opted not to change the disclosure regulations for offshore funds.