In January 2023, almost 18 months ago, Hindenburg Research rattled the Adani Group, alleging brazen stock manipulation and accounting fraud scheme. Even as the ports-to-power conglomerate denied the allegations, the ensuing sell-off wiped off billions of dollars in market value of its listed entities, although the shares have recovered since then. Now comes a twist in the tale, with Hindenburg pointing fingers at one of India's largest private sector lenders, Kotak.
Kotak Bank created and oversaw the offshore fund structure used by Hindenburg's investor partner to bet against Adani, the US-based short seller alleged on July 1. These claims have been denied by Kotak Mahindra International Limited.
The allegations against Kotak were a part of a wider blog post where Hindenburg disclosed that it had received a show cause notice from markets regulator Securities and Exchange Board of India (SEBI) in the Adani Group matter.
Hindenburg said the letter from the regulator outlined "suspected violations of Indian regulations."
What was the Adani Hindenburg Case?
In January 2023, Hindenburg released a report on the Adani Group, where in it alleged a vast network of offshore shell entities controlled by Gautam Adani's brother Vinod and close associates. As per Hindenburg's allegations, "billions were surreptitiously moved through these entities, into and out of Adani public and private entities, often without related-party disclosures."
The report further claimed how a network of opaque offshore fund operators surreptitiously helped Adani evade minimum shareholder listing rules. A huge sell-off in listed Adani Group stocks followed in the next few weeks.
Adani has always denied Hindenburg's allegations, calling the report malicious, mischievous and unresearched.
Did Hindenburg make millions from shorting Adani stocks and bonds?
Reports had earlier claimed that the research firm had multiple investor partners and they all had made millions of dollars from shorting Adani Group securities. On Tuesday, Hindenburg clarified that it had only one investor relationship in its Adani thesis and that it made only $4.1 million in gross revenue through gains related to Adani shorts.
"We made just $31,000 through our own short of Adani US bonds held into the report. Net of legal and research expenses (including time, salaries/compensation, and costs for a 2-year global investigation) we may come out ahead of breakeven on our Adani short," Hindenburg has claimed.
Latest Allegations against SEBI, Kotak Bank
Hindenburg's latest post follows a show cause notice it says it had received from SEBI.
The firm said to this day, Adani has failed to address its allegations.
Hindenburg went on to target the regulator, who it said instead of "meaningfully pursuing the parties that ran a secret offshore shell empire engaging in billions of dollars of undisclosed related party transactions through public companies while propping up its stocks through undisclosed share ownership via a network of sham investment entities" seemed "more interested in pursuing those who expose such practices."
READ MORE: What Hindenburg said about Kotak Bank after SEBI show cause notice over Adani Group report
Much of the notice seemed designed to imply that its legal and disclosed investment stance was something secret or insidious, or to advance novel legal arguments claiming jurisdiction over it, Hindenburg said.
"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," said Hindenburg.
Instead, according to Hindenburg, SEBI simply named the K-India Opportunities fund and masked the Kotak name with the acronym KMIL.
What does Kotak say on Hindenburg's allegations?
K-India Opportunities Fund (KIOF) is a SEBI-registered foreign portfolio investor and is regulated by the Financial Services Commission of Mauritius, a spokesperson for Kotak Mahindra International said on Tuesday.
The fund, established in 2013 to enable foreign clients to invest in India, follows due KYC procedures while onboarding clients and all its investments are made in accordance with applicable laws, the spokesperson said.
"Kotak Mahindra International Limited (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. 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," the KMIL spokesperson added.
Despite Kotak's clarifications, Kotak Mahindra Bank shares tumbled 2.4 per cent on Tuesday to close at Rs 1,765.75. The broader BSE Sensex closed around 35 points or 0.04 per cent lower.
Adani Group shares ended mixed. While, Adani Enterprises and Adani Power were down around 1 per cent, Adani Ports ended flat. Adani Wilmar, Adani Green Energy, Adani Energy Solutions and Adani Total Gas closed higher.