Idea of Kotak as a party to Hindenburg’s Adani shorting strange and almost unbelievable: Shriram Subramanian

Shriram Subramanian, Founder & MD, InGovern, says Kotak would likely be acting as just a creator of a fund where someone else’s funds are used. US-based short-seller Hindenburg Research whose report on the Adani Group last year triggered a rout in the group’s stocks, has come out with a note stating India’s market regulator Sebi had sent it a letter outlining suspected violations over its short bet against Adani Group last year and revealed it may “barely come out above breakeven” on its trade. The short seller also stated Kotak Mahindra Bank created and oversaw an offshore fund structure that was used by its “investor partner” to bet against the conglomerate, providing new details of trades that have puzzled investors.What do you read of the details on the role of Kotak, that have come out so far?
Shriram Subramanian: I would find it strange and almost unbelievable if Kotak is a party to it. Kotak would likely be acting as just a creator of a fund where someone else’s funds are used. Kotak Bank may have acted as a conduit, as a commercial bank and there is nothing wrong with it. As long as they have done proper KYC of the investor or of the entity that has set up this fund or has invested this money and routed the money through the Kotak Bank or the Kotak Fund itself.

So, Kotak as an entity or one of the Kotak Bank subsidiaries, which is Kotak International, is a fee-charging entity, Kotak Mahindra Investment Limited, could just be a fee-charging entity and I do not think there is any maleficence by Kotak itself. I would find it very hard to believe that. Now, the details are coming out that Hindenburg made about $4 million from this entire shorting. You understand the regulatory framework very closely. When the Supreme Court gave a clean chit to Adani and instructed SEBI to probe entities involved in the short casing, under that process, SEBI sent out a show cause notice. And now Hindenburg is putting all of that out in public. How do you see this process?
Shriram Subramanian: I guess to some extent Hindenburg is an unregulated entity as far as SEBI is concerned. Two, obviously Hindenburg is wrong to some extent, at least by taking on the regulator and directly naming them and directly accusing them also, more than just naming or putting out a bland letter and saying that we received a show cause notice. Hindenburg is directly taking on the regulator SEBI in this case.

As you rightly pointed out, SEBI was under instructions by the Supreme Court to probe the short sellers, one. Two is, it is also to be noted that SEBI’s investigations in the Adani Group are still not conclusive in that sense they have not yet put out any report or come out with conclusive this to the Adani investigations itself, so that is also ongoing, so that does not mean that both the investigations of the short selling as well as of Adani Group cannot happen in parallel.They could and that is the reason I think this show cause notice has been issued by SEBI because of the directions of the Supreme Court also.