US-based short seller Hindenburg Research on Saturday morning posted a message on Elon Musk-owned X hinting at another major revelation involving an Indian company. The message read: “Something big soon India”.
In January 2023, Hindenburg Research released a scathing report targeting the Adani Group, controlled by Gautam Adani. The timing of the report, just before Adani Enterprises' scheduled share sale, could not have been more detrimental as it swiftly resulted in an astonishing $86 billion plummet in the market capitalisation of Adani Group's stocks. This substantial decline in stock value subsequently prompted a substantial sell-off of the group's bonds listed abroad.
After the huge Adani controversy last year, all eyes are on the US-based short seller on its next move.
In June of this year, Hindenburg Research made headlines when it revealed that the capital market regulator, Securities and Exchange Board of India (Sebi), had issued a notice alleging violations of Indian regulations against them. This development marked a significant turning point as Hindenburg Research, for the first time, explicitly identified Kotak Bank in its report. Consequently, this revelation led to a noticeable decline in Kotak Bank's stock value, reaching its lowest point since June in the early trading session.
Hindenburg said that the June 27, 2024 notice from the Indian markets regulator was 'nonsense'. "It was 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".
Hindenburg wrote: "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."
It further said: "We suspect SEBI’s lack of mention of Kotak or any other Kotak board member may be meant to protect yet another powerful Indian businessman from the prospect of scrutiny, a role SEBI seems to embrace."
Sebi in its note stated there were connections between Hindenburg Research and New York hedge fund manager Mark Kingdon. SEBI said Hindenburg shared an advance copy of its report on the Adani Group with Kingdon about two months before its public release in January 2023, enabling significant profits through strategic trading.
Sebi's notice disclosed that Kingdon Capital held significant investments in Kotak Mahindra Investments Limited (KMIL). It was revealed that Kingdon Capital capitalised on the market volatility triggered by a recent report. The firm made a strategic move by allocating $43 million towards establishing short positions in Adani Enterprises Ltd (AEL) before the report surfaced. Subsequently, Kingdon Capital successfully closed these positions, yielding a profit of $22.25 million.
Moreover, the Sebi notification featured time-stamped conversations between personnel from the hedge fund and traders affiliated with Kotak Mahindra Investments Limited. These exchanges pertain to the trading of futures contracts linked to Adani Enterprises, indicating intricate financial dealings between the parties involved.
In response to Sebi's allegations, Kingdon Capital stated that it had the legal authority to engage in these research agreements, enabling the receipt and utilisation of reports prior to public release.
On the other hand, Kotak Mahindra Bank refuted any awareness of Kingdon’s affiliation with Hindenburg or participation in the utilisation of sensitive financial information.