K-Drama on D-Street! Kotak Mahindra Bank on Hindenburg hitlist after Adani

US-based activist investor Hindenburg Research has once again opened its mouth on the Adani controversy but the target this time is Kotak Mahindra Bank and markets regulator Sebi. As a result, shares of the private sector lender fell up to 4% while Adani stocks were unaffected by the revelations made by the short-seller.

In its rebuttal to Sebi’s showcause notice, which purportedly noted that a fund run by Kotak built short positions before the Hindenburg report was published on January 25, 2023 to make a profit of Rs 183.24 crore, Hindenburg questioned why the regulator avoided using the word “Kotak” and instead said K-India Opportunities Fund and KMIL (Kotak Mahindra International Limited).

Sebi’s showcause notice, as released in the public domain by Hindenburg, has K-India Opportunities Fund – Class F, a Mauritius registered FPI, as one of the noticees along with Hindenburg and New York-based Kingdon Capital.

Sebi hasn’t released its showcause notice in public domain and ET Markets has written to the regulator seeking confirmation on whether the 46-page notice being circulated is genuine. The article will be updated once their reply is received.

Also read | Kotak Bank shares fall 4% as its name crops up in Adani-Hindenburg sagaTraining its guns on Kotak, Hindenburg said Sebi’s notice conspicuously failed to name Kotak Bank, one of India’s largest banks and brokerage firms founded by Uday Kotak, which, it said, created and oversaw the offshore fund structure used by its investor partner to bet against Adani.Hindenburg hasn’t named its investor partner but insisted there was only one partner.”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,” the research firm said.

As Kotak Bank shares started falling following this, Kotak Mahindra International Limited (KMIL) issued a statement stating that Hindenburg has never been a client of the firm nor has it ever been an investor in K-India Opportunities Fund (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,” a KMIL spokesperson said.

Established in 2013 to enable foreign clients to invest in India, KIOF is a Sebi registered FPI and is regulated by the Financial Services Commission of Mauritius.

Also read | Hindenburg claims making merely $4 million from $153 billion Adani selloff

“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,” KMIL said.

ET has also written to Kotak asking whether they have received a notice from Sebi in the matter. Their reply is awaited.

Shriram Subramanian, Founder & MD, InGovern, said he finds it strange and almost unbelievable that Kotak can be a party to this issue.

“Kotak would likely be acting as just a creator of a fund where someone else’s funds are used. Kotak Bank may have acted as a conduit, as a commercial bank and there is nothing wrong in it. As long as they have done proper KYC of the investor or of the entity which has set up this fund or has invested this money and routed the money through them. I do not think there is any maleficence by Kotak itself,” Subramanian said.