Did Kotak Mahindra Bank help short Adani? Hindenburg raises questions
What's the story
Kotak Mahindra Bank, a private sector lender, has been accused by US-based Hindenburg Research of creating and managing an offshore fund used to short Adani stocks. The allegations were made in a blog post today, following a show cause notice from the Securities and Exchange Board of India (SEBI), regarding Hindenburg's report on the Adani Group. Hindenburg questioned SEBI's omission of Kotak's name in its notice, suggesting it was intended to protect Uday Kotak from scrutiny.
Rebuttal
Kotak refutes Hindenburg's claims
The Kotak Mahindra group has categorically denied any association with Hindenburg. It stated that the US short-seller was never a client of its K-India Opportunities Fund (KIOF) or Kotak Mahindra International Ltd (KMIL). A spokesperson for KMIL clarified that the group was also unaware of Hindenburg being a partner of any of its investors. The group confirmed that all investments were made as principals and not on behalf of any other person.
Firm's stance
Hindenburg's response to SEBI's notice
In response to a 46-page show cause notice from SEBI, Hindenburg revealed that it held short positions on Adani shares through an offshore fund structure. The firm stated that this was facilitated by an investor partner who was indirectly shorting Adani derivatives. Hindenburg insisted that it had adequately disclosed its position and potential bias, as it stood to benefit from a decline in Adani shares.
Market impact
Kotak Bank's share price dips
The allegations against Kotak Bank have led to a decrease in its share price. The bank's shares fell by up to 2% to a day's low of ₹1,768 on the Bombay Stock Exchange (BSE) after Hindenburg's accusations were made public. Over the past three years, stocks of Kotak Mahindra Bank have only increased by 4%, significantly underperforming its peers on Sensex and Nifty.
Past controversy
Hindenburg's previous accusations against Adani
Hindenburg's recent allegations follow its 2023 report accusing Adani Group firms of stock manipulation and accounting fraud. The Adani Group dismissed these accusations as malicious and baseless. In January 2024, India's Supreme Court ruled that Adani would not face any more investigations beyond SEBI's current scrutiny. The SC also decided against altering disclosure rules for offshore funds, despite Hindenburg's claims.