NEW DELHI, July 3
Kotak Mahindra Bank is under scrutiny after Hindenburg Research dragged the bank in the rout that erupted last year after the US-based firm released a report on Gautam Adani-led Adani Group that triggered a $150 billion rout in Adani stocks. Did Kotak Mahindra Bank really had a role to play? Was the Securities and Exchange Board of India (SEBI) really protecting the Bank because of its links with the private banking institution and with Uday Kotak?
While Kotak Mahindra Bank has already issued a clarification on the claims and has maintained that Hindenburg has never been a client of the firm nor has it ever been an investor in the Fund, shares of the private sector lender fell up to 4 per cent on July 2 after recovering today. However, the target company, that is, Adani, was unaffected by the revelations made by Hindenburg Research.
In a regulatory filing, a spokesperson of Kotak Mahindra International Limited, said, “We have cooperated with regulators in relation to our operations and continue to do so. Kotak Mahindra International Limited (KMIL) and KIOF unequivocally state that Hindenburg has never been a client of the firm nor has it ever been an investor in the Fund. 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.”
Kotak Mahindra Banks stated that K- India Opportunities Fund Ltd (KIOF) is a SEBI registered Foreign Portfolio Investor and is regulated by the Financial Services Commission of Mauritius. The Fund was established in 2013 to enable foreign clients to invest in India. “The Fund follows due KYC procedures while onboarding clients and all its investments are made in accordance with all applicable laws,” it added.
Earlier, Hindenburg Research had attacked SEBI for not naming Kotak Bank in the matter. The US short-seller said that brokerage firms founded by Uday Kotak created and oversaw the offshore fund structure, which was used by its investor partner to bet against Adani group shares. Hindenburg alleged that SEBI instead “named the K-India Opportunities fund and masked the ‘Kotak’ name with the acronym ‘KMIL’.”
Kotak Mahindra acknowledged that the fund had facilitated the shorting of Adani shares for Kingdon Capital Management, an investor-partner of the US short-seller. However, it maintained that the bank learnt about the association between Hindenburg Research and Kingdon Capital only after the US-based short-seller posted a copy of Sebi’s 26 June notice to it on its website on Tuesday.
The Bank said that the transactions in respect to the allegations as stated by Hindenburg against Adani Group were made by the Fund on the advice, and for the benefit, of its investor Kingdon. “KMIL was informed by Kingdon that the transactions were made on a principal basis, i.e. for themselves. Kingdon never disclosed that they had any relationship with Hindenburg nor that they were acting on the basis of any price sensitive information. In fact, they had expressly confirmed that any advice from Kingdon to invest would be basis purely public information,” Kotak Mahindra Bank said in an exchange filing.
Kotak maintained that neither the Fund nor KMIL were aware that Kingdon entities, which include a US SEC registered investment advisor, in respect of whom KYC as per law was duly performed, had any association with Hindenburg. “We deny any allegation of being aware of such report or acting in collusion in any manner with Kingdon or Hindenburg. We are legally advised that the Fund acted in full compliance with its obligations under law as well as to its investors.
The Fund extended full cooperation to SEBI in its investigation and has shared all relevant facts. The Fund will present its case and bona fides as part of the show cause proceedings that have been initiated,” it added.
