Kotak Mahindra caught in Adani-Hindenburg controversy; denies knowledge of manipulative trade

In a significant development, Kotak Mahindra Bank finds itself entangled in the Adani-Hindenburg controversy. The bank’s involvement came to light after Hindenburg Research posted a show-cause notice from the Securities and Exchange Board of India (Sebi) on its website, revealing the connection between Hindenburg and Kotak’s subsidiary, Kotak Mahindra (International) Ltd (KMIL).

Association Disclosure: Kotak Mahindra Bank became aware of the Hindenburg-Kingdon Capital connection only after the short-seller published Sebi's notice dated June 26. The bank stated that Hindenburg Research was neither a client nor an investor in its K-India Opportunities Fund Ltd, a Sebi-registered foreign portfolio investor regulated by the Financial Services Commission of Mauritius.

Accusations by Hindenburg: Hindenburg accused Sebi of attempting to protect Kotak Mahindra Bank and other entities by not disclosing their involvement in facilitating the short-selling of Adani Group stocks. The research firm highlighted that Sebi’s notice did not explicitly mention Kotak’s role in the matter, suggesting a potential bias or omission intended to shield influential Indian entrepreneurs.

Kotak's Defense: Reacting to the allegations, a Kotak Mahindra Bank executive, speaking on the condition of anonymity, expressed frustration over being implicated by Hindenburg. The executive emphasized that the bank had no knowledge of manipulative trading activities, stating, “If a fund manager decides to sell a stock trading at 200 times its price to equity, how are we supposed to know it’s manipulative?”

Fund Manager’s Role: KMIL, being a major fund manager for India, naturally attracts large global investors. The bank clarified that it was unaware of Hindenburg being a partner of any of its investors and asserted that investments were made on a principal basis, not on behalf of third parties.

Market Impact: Following the revelation, Kotak Mahindra’s shares fell by approximately 2% in afternoon trading on the NSE, while the broader Nifty and Sensex indices remained relatively stable.

Hindenburg’s Response and Claims

In response to Sebi’s notice, Hindenburg criticized the regulator for not naming Kotak Mahindra Bank in its proceedings. The short-seller accused the bank of managing the offshore structure through which Kingdon Capital shorted Adani stocks. Hindenburg pointed out that while Sebi was stringent in asserting its jurisdiction over Hindenburg, it conspicuously omitted Kotak’s name, using the acronym “KMIL” instead.

Hindenburg speculated that this omission might have been a deliberate attempt to protect Kotak Mahindra Bank from scrutiny, a claim that raises questions about transparency and regulatory impartiality.

The ongoing controversy has put Kotak Mahindra Bank in a challenging position, highlighting the complexities of global financial transactions and the potential repercussions of regulatory disclosures. As the situation unfolds, the focus remains on the actions of both the bank and Sebi in addressing the allegations and ensuring fair market practices.