The Securities and Exchange Board of India has floated a consultation paper on Wednesday mandating certain Foreign Portfolio Investors to make additional disclosures to prevent any violation of minimum public shareholding rules and to ensure there is no misuse of the FPI route to takeover Indian companies.
The last date to send comments is June 20.
Who will have to comply with additional disclosures?
The paper by the regulator specified that only identified high-risk FPIs with concentrated single-group equity exposures or significant equity holdings will be required to provide the additional disclosures around control, ownership and economic interest of such funds.
Sebi has proposed that for now, any high-risk FPIs that are holding over 50 per cent of the equity Asset Under Management in a single corporate group will have to comply with the requirements for additional disclosures up to the level of natural persons and or Public Retail Funds or large public listed entities.
The regulator has also added that the existing high-risk FPIs with an overall holding of over Rs 25,000 crore in the Indian equity markets will have to comply with the requirements of additional disclosures within 6 months. But if the FPIs fail to do so then they need to bring down their holdings within the time frame.
How will this affect the new FPIs that have begun investments?
The regulator has also specified that new FPIs that have begun investments will be allowed to cross the 50 per cent mark only for six months without the need for any additional disclosures coming into effect. Beyond the mark of six months the companies will have to fulfil the additional disclosure requirements.
The consultation paper by the regulator states, "Some FPIs have been observed to concentrate a substantial portion of their equity portfolio in a single investee company/ company group. In some cases, these concentrated holdings have also been near static and maintained for a long time."
Sebi consultation paper also added, "Such concentrated investments raise the concern and possibility that promoters of such corporate groups, or other investors acting in concert, could be using the FPI route for circumventing regulatory requirements such as that of maintaining Minimum Public Shareholding (MPS). If this were the case, the apparent free float in a listed company may not be its true free float, increasing the risk of price manipulation in such scripts."
FPIs need to communicate material changes with 7 days
The paper also states that the FPIs will also need to communicate any material change to their designated depository participants within seven days of the change.
Low risk and moderate risk FPIs
The regulator has classified government and government-related entities like sovereign wealth funds, central banks, etc as low risk FPIs as the details of ownership, economic and control interest are already known as Government has the majority stake. Whereas Public Retail Funds or Pension Funds were classified as moderate-risk.
