Hindenburg refutes Indian regulator's claims on Adani short bet

By Urvi Dugar, Shankar Ramakrishnan and Jayshree P Upadhyay

(Reuters) – Hindenburg Research on Monday refuted allegations by India's securities regulator that the company collaborated with a U.S. asset manager to use non-public information to set up its short bet against Adani Group last year.

In a statement posted on its website, US short-seller Hindenburg provided a copy of a 46-page demand notice from the Securities and Exchange Board of India (SEBI) outlining allegations that six entities, including Hindenburg, asset manager Kingdon Capital Management and a Mauritius-based trading fund set up by Kotak Mahindra Bank, violated certain rules under the Prevention of Fraud and Unfair Trade Practices Regulations.

Although SEBI has not made the notice public, two sources within the regulator with direct knowledge of the matter confirmed its authenticity.

The allegations, if proven, could result in financial penalties and the disgorgement of any illegal gains.

Hindenburg responded that the opinion was “absurd” and an attempt to silence and intimidate by alleging that Hindenburg's report contained false statements and inaccurate statements intended to mislead readers.

“In our view, SEBI has neglected its responsibility, apparently doing more to protect those who commit fraud than to protect the investors who are victims of it,” Hindenburg said.

The disclosure of SEBI's notice adds a new twist to the saga that began last year when Hindenburg, founded by Nathan Anderson, alleged improper business dealings by Adani.

Adani, which has denied the allegations, suffered a loss of up to $150 billion in combined market value after the report but has since rebounded.

In the notice, SEBI alleges that Hindenburg collaborated with its client Kingdon Capital Management by providing a draft of its report on Adani Group before it was made public.

SEBI said Mark Kingdon, the owner of Kingdon Capital, then set up a fund to trade Indian stocks known as the K Indian Opportunities Fund. The fund created short positions in Adani Group shares between January 10 and January 20, 2023, five days before the Hindenburg report was released, according to SEBI documents.

In its statement, Hindenburg said a Mauritius-registered unit of Kotak Mahindra Bank, an Indian company, created and oversaw an offshore fund structure that was used by its “investor partner” to bet against Adani's shares.

The positions were liquidated in February, generating gains of $22.25 million, according to SEBI documents.

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Hindenburg made no comment in his statement on his relationship with Kingdon.

An email to Hindenburg Research and Kingdon Capital did not receive an immediate response.

SEBI did not respond to a request for comment on Hindenburg's statement and confirmation of the authenticity of the show cause order.

Kotak did not respond to a request for comment.

Hindenburg's response sheds some light on the mechanics of its short trade in Adani, the details of which have puzzled other investors because Indian securities rules make it difficult for foreigners to bet against the country's companies.

Hindenburg said it made $4.1 million in gross revenue from “gains related to short positions in Adani arising from this investor relationship” and only $31,000 from its short position in Adani’s U.S. bonds. It did not name the investor.

“It was a tiny position,” he said. “But to this day, our research on Adani is by far the work we are most proud of.”

(Reporting by Urvi Dugar in Bangalore and Juby Babu in Mexico City; Editing by Krishna Chandra Eluri, Stephen Coates and Christian Schmollinger)