Kotak Bank Set Up Fund to Bet Against Adani, Claims Hindenburg Report

Mumbai: Hindenburg Research has alleged that Kotak Mahindra Bank helped set up an offshore fund used by a partner to trade Adani stocks before the Hindenburg report’s release in January last year. This led to Kotak Mahindra Bank shares falling among the top five on the Nifty index on Tuesday.

Background of Allegations

The Securities and Exchange Board of India (SEBI) issued a show-cause notice on June 27 to six entities, including K India Opportunities Fund (KIOF), a foreign portfolio investor managed by Kotak Mahindra International. SEBI claims Hindenburg helped Kingdon Capital establish KIOF to bet against Adani stocks just before releasing their critical report on January 24, 2023. On January 9, 2023, Kingdon Capital’s Master Fund transferred $40 million to KIOF, with $15 million converted into rupees and used to short Adani Enterprises futures. The positions were closed in February 2023, resulting in a profit of $22.25 million.

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SEBI’s Claims

SEBI alleges that KIOF had inside knowledge about the Hindenburg report’s release and timed their short selling of Adani shares accordingly. SEBI stated KIOF sold 850,000 Adani Enterprises shares on January 20, 2023, and closed the positions between February 1 and February 22, 2023, making a profit of ₹183 crore. Adani Enterprises’ stock dropped 59% between January 24 and February 22, 2023, after the report’s release.

Kotak Bank’s Response

Kotak Mahindra Bank stated that Kingdon Capital informed them that the trades were made independently, without any disclosure of ties to Hindenburg or the use of any insider information. The bank insisted it had no prior knowledge of the report’s publication. Kotak did not directly address questions from The Economic Times but clarified in an exchange filing that they had performed all necessary KYC checks as required by law on Kingdon entities.

Following these allegations, Kotak Mahindra Bank’s stock dropped by up to 4% during Tuesday’s trading, closing 2.16% lower at ₹1,769.60.

Hindenburg’s Critique

Hindenburg criticised SEBI for not naming Kotak Mahindra Bank in the notice, instead referring only to the K India Opportunities Fund and using the abbreviation “KMIL” for Kotak Mahindra International.

The controversy centres on whether Kotak Mahindra Bank helped facilitate trades against Adani Group by setting up a fund for Kingdon Capital, based on the timing of the Hindenburg report. Kotak denies any wrongdoing or prior knowledge of the report’s release, while SEBI and Hindenburg accuse the entities of fraudulent practices. The case is ongoing, with further replies and hearings expected.