Informist, Monday, Jul 1, 2024

--Kotak Bank: FPI fund never aware Hindenburg partner of any investor
--Kotak Bank:Hindenburg not an investor in K-India Opportunities Fund
--Kotak Bank: Hindenburg has never been a client of international arm

MUMBAI – After Kotak Mahindra Bank was dragged into the Adani fiasco by Hindenburg Research LLC on Monday, the private-sector lender clarified in a press release today that the US-based investment research firm had never been a client of Kotak Mahindra International or invested in the K-India Opportunities Fund.

In a response to a show-cause notice from the Securities and Exchange Board of India, Hindenburg Research said Kotak Mahindra Bank created and oversaw an offshore fund, a foreign portfolio investor registered with SEBI, which was used by the US firm's investor partner Mark Kingdon to go short on Adani Enterprises stock futures and profit from a fall in the shares of Adani Enterprises after publication of the short-seller's report.

Kotak Mahindra International is a subsidiary of the bank registered with the Financial Services Commission of Mauritius. K-India Opportunities Fund Ltd is a SEBI-registered FPI regulated by the commission in Mauritius. The fund was established in 2013 to enable foreign clients to invest in India.

Following the claims by Hindenburg Research, shares of Kotak Mahindra Bank fell close to 4%. The stock closed over 2% lower at 1,769.60 rupees on the National Stock Exchange.

"Kotak Mahindra International Limited (KMIL) and KIOF (K-India Opportunities Fund Ltd) unequivocally state that Hindenburg has never been a client of the firm nor has it ever been an investor in the fund," the bank said in a press release.

"The fund was never aware that Hindenburg was a partner of any of its investors," the bank added. "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."

Kotak Bank also said that K-India Opportunities Fund follows due procedures under the know your customer norms while onboarding clients, and all its investments are made in accordance with applicable laws.

According to Hindenburg Research, SEBI's failure to mention Kotak or any Kotak Bank board member suggested it was trying to protect another powerful Indian businessman. "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," the short seller said. "Instead it simply named the K-India Opportunities Fund and masked the 'Kotak' name with the acronym 'KMIL'."

Hindenburg recalled that Uday Kotak himself 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," the US-based investment research firm said.

In its response to the market regulator, Hindenburg Research said much of SEBI's show-cause notice "seemed designed to imply that our legal and disclosed investment stance was something secret or insidious, or to advance novel legal arguments claiming jurisdiction over us". The firm was responding to SEBI's allegation that disclaimers made by Hindenburg in its January 2023 report were misleading.

Hindenburg Research uploaded to its website the notice document purported to have been sent by SEBI. As per the document, SEBI issued the notice not only to Hindenburg Research, but also to its founder Nathan Anderson and to SEBI-registered Mauritius-based FPI K-India Opportunities Fund Ltd - Class F, US-based Kingdon Capital Management LLC, Cayman Islands-based M Kingdon Offshore Master Fund, and US-based Mark Kingdon.

In January 2023, Hindenburg Research released a long and controversial report claiming to have uncovered a labyrinth of offshore shell entities managed by Vinod Adani, older brother of Adani Group Chairman Gautam Adani and a former director of Adani Enterprises and other Adani Group companies.

The report alleged that these offshore shell companies were used for, among other things, to route money through Adani's private companies to the group's companies to give the appearance of strong financial solvency, and to evade the minimum public shareholding requirement for domestic listed companies. The Adani Group dismissed these and other allegations in the Hindenburg report as baseless and malicious. End

Reported by Subhana Shaikh

Edited by Rajeev Pai

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