Hindenburg faces Sebi scrutiny, Kotak Bank dragged in Adani saga
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Synopsis
Adani-Hindenburg Case: Hindenburg Research's disclosure of suspected violations by Sebi regarding Adani Group's short bet led to minimal gains, highlighting challenges foreign investors face under Indian securities rules. The short seller also stated that Kotak Mahindra Bank created and oversaw an offshore fund structure used by its "investor partner" to bet against the conglomerate, providing new details of trades that puzzled investors.
The Adani Group has consistently refuted the short seller's accusations, which led to a temporary loss of over $150 billion in market value for its publicly traded firms. Hindenburg said that the company did not effectively respond to the concerns outlined in its report.
The short seller also stated Kotak Mahindra Bank created and oversaw an offshore fund structure that was used by its "investor partner" to bet against the conglomerate, providing new details of trades that have puzzled investors.
The short seller's response stated: 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. Instead it simply named the K-India Opportunities fund and masked the “Kotak” name with the acronym “KMIL,”
The short seller said it made $4.1 million in gross revenue through "gains related to Adani shorts from that investor relationship" and just $31,000 through its short position of Adani's U.S. bonds. It did not name the investor.
Also Read: Zero factual inaccuracies with our Adani research: Hindenburg on Sebi notice | Read short seller's full response here
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Characterizing the Sebi's "show cause" notice as attempted intimidation, Hindenburg wrote that the regulator had made the "nebulous allegation" that Hindenburg's report contained misrepresentations and inaccurate statements meant to mislead readers.
"In our view, Sebi has neglected its responsibility, seemingly doing more to protect those perpetrating fraud than to protect the investors being victimized by it," Hindenburg said.
"Today we are sharing the entirety of this notice, frankly because we think it is nonsense, concocted to serve a pre-ordained purpose: an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India," the short-seller's notice further stated.
Hindenburg also added that the market regulator's after 1.5 years of investigation, Sebi identified zero factual inaccuracies with their Adani research. Instead, the regulator took issue with things like: Use of the word “Scandal” when describing multiple prior instances of Adani promoters being charged with fraud by Indian regulators; and quoting of an individual that alleged Sebi is corrupt and works “Hand In Glove” with conglomerates like Adani to help it skirt regulations
Sebi, Adani Enterprises and Kotak did not immediately respond to a request for comment outside working hours.
The disclosure of the Sebi notice adds a new twist in the saga unleashed last year when Hindenburg, founded by Nathan Anderson, alleged improper business dealings by Adani.
The group, which refuted the allegations, suffered a loss of as much as $150 billion in combined market value after the report, but has since rebounded.
Hindenburg's response also sheds some new light on the mechanics of its trade, the details of which had intrigued other investors because Indian securities rules make it hard for foreigners bet against companies there.
"It was a tiny position," it said. "But, to date, our research on Adani is by far the work we are most proud of."
(With inputs from Reuters)
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