Foreign portfolio investments(FPIs) mainly focusing on a single corporate group must now provide information regarding their ownership and economic interests to the Indian regulator, Sebi. This stipulation was announced on Wednesday in an attempt to prevent potential abuse of the Foreign Portfolio Investments(FPIs) and guard against the dangers of an unsolicited takeover attempt of Indian companies. The aim here is to ensure that Minimum Public Shareholding (MPS) requirements are adhered to.
In addition, the decision comes amid the recent Adani-Hindenburg controversy.
FPIs with concentrated single group equity exposures or significant equity holdings will be required to disclose additional granular information under the new proposed framework.
The regulator said in a release that such FPIs must provide granular level disclosures regarding ownership, economic interest, and control rights.
The regulator said that FPIs holding more than 50% of their equity Asset Under Management (AUM) in a single corporate group or those holding more than Rs 25,000 crore of equity assets in the Indian markets will need to comply with the new requirements.
Madhabi Puri Buch, Sebi’s Chairperson, told reporters after the board meeting that 35 large companies had provided feedback on changes in FPI disclosure norms.
The new FPI norms will come into effect for those already here in three months and for new comers in six months, according to Sebi Whole Time Member Anantha Narayan G.
When enquired about the effects on the market ought to some FPIs decline to give out more details, he responded that those entities which will need to make extra disclosures together hold a percentage of the BSE capitalisation amounting to less than 1%. Buch added that this was being worked on for roughly 18 months, but took time as acquiring the endorsement from the Ministry of Finance with respect to PMLA (Prevention of Money Laundering Act) regulations depending on FATF (Financial Action Task Force) rules.
These additional disclosures will not be required for certain entities, according to the release. A number of these are government and government-related investors, pension funds and public retail funds, certain listed ETFs, corporate entities, and verified pooled investment vehicles.
It added that applicants whose investors contribute 25% or more to the corpus are listed on the Sanctions List are ineligible for registration as FPIs.
Beneficial Ownership (BO) threshold requirements were amended in March 2023 to 10% for companies and trusts and 15% for partnerships and unincorporated associations.
The Sebi board also approved changes to the FPI Regulations to align these eligibility criteria with the PML Rules’ reduced threshold.
According to Hindenburg’s research report earlier this year, certain FPIs owned significant stakes in Adani Group listed companies. Adani denied the allegations.
Because the existing regulations are lax in identifying the true owners of many investments, Sebi was unable to identify the beneficial owners of some foreign portfolio investments in Adani stocks.
According to Sebi’s earlier consultation paper on FPIs, some FPIs have been observed to concentrate a substantial portion of their equity portfolio in a single company.
It raised concerns that promoters of these corporate groups, or other investors acting in concert, might use the FPI route to circumvent regulatory requirements, such as maintaining MPS.
REITs and InvITs: decision
The market regulator has also decided to introduce special rights to unitholders of REITs and InvITs by giving them the right to nominate board members as part of strengthening governance norms. A self-sponsored real estate investment trust (REIT) or infrastructure investment trust (InvIT) will also be introduced by Sebi.
Sebi’s board of directors approved amending rules to grant nomination rights to unitholders holding 10% or more of the total outstanding units of an InvIT/REIT, either individually or collectively, on the board of directors of the investment manager/manager. Each unitholder receives pro-rata rights as a result.
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