Indian market regulator enhances disclosure norms for foreign portfolio investors

• FPIs with over 50% of their equity assets under management in a single corporate group or holding more than Rs 25,000 cr in Indian markets will need to comply.
• The new requirements will come into effect in three months for existing FPIs and six months for newcomers.
• The decision also comes against the backdrop of the recent Adani-Hindenburg saga.
  

Foreign Portfolio Investors (FPIs) that concentrate holdings in a single corporate group will now have to furnish details about ownership and economic interests to the Indian market regulator, Sebi. In a late release on Wednesday, Sebi decided to mandate enhanced disclosures from certain class of FPIs in a move is aimed at preventing possible circumvention of Minimum Public Shareholding (MPS) requirements and potential misuse of the FPI route to guard against the inherent risks of opportunistic takeover of Indian companies.

The decision also comes against the backdrop of the recent Adani-Hindenburg saga.

Under the new proposed framework, FPIs with concentrated single group equity exposures or significant equity holdings will be mandated to make additional granular disclosures.

Such FPIs would be required to provide granular level disclosures regarding ownership, economic interest, and control rights on a full look-through basis, the regulator said in a release.

The regulator said that FPIs holding more than 50% of their equity Asset Under Management (AUM) in a single corporate group or FPIs that individually, or along with their investor group hold more than Rs 25,000 crore in the Indian markets would be required to comply with the new requirements.

Briefing reporters after the board meeting, Sebi Chairperson Madhabi Puri Buch said the changes in norms related to FPI disclosures have been decided, based on the feedback from as many as 35 large players.

Sebi Whole Time Member Anantha Narayan G said the new FPI norms to come to effect in three months for those already here and for new comers in six months.

When asked about the impact on the market in case some of those FPIs refuse to make more disclosures, he said those FPIs which will have to make more disclosures collectively own equities worth under 1% of the BSE market capitalisation. On the delay in bringing out these norms, Buch said this was being worked on for the past 18 months or so but took time as it had to get the nod from the finance ministry on the PMLA (Prevention of Money Laundering Act) rules which in turn are based on the FATF (Financial Action Task Force) rules.

As per the release, certain entities would be exempted from making such additional disclosures. These include government and government-related investors, pension funds and public retail funds, certain listed ETFs, corporate entities and verified pooled investment vehicles meeting certain conditions.

Applicants with investors contributing 25% or more in the corpus that are mentioned in the Sanctions List notified by UN Security Council are ineligible for registration as FPIs, it added.

In March 2023, PML Rules threshold requirements for identification of Beneficial Ownership (BO) were amended and currently stand at 10% for companies and trusts and 15% for partnerships and unincorporated association or body of individuals.

Sebi board also approved changes to the FPI Regulations for aligning these eligibility criteria in the Regulations with the reduced threshold prescribed under PML Rules.

Earlier this year, the US-based Hindenburg in its research report had alleged that certain FPIs held a significant stake in the listed firms of Adani Group. The allegations were denied by the conglomerate.

The move has its genesis in the Adani stocks issue where Sebi could not identify the beneficial owners of some foreign portfolio investments in Adani stocks since the existing regulations are lax in identifying the true owners of many investments.

Earlier, in a consultation paper on FPIs, Sebi had said that some FPIs have been observed to concentrate a substantial portion of their equity portfolio in a single investee company/company group.

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 MPS, it had said.

Decision on REITs and InvITs

Meanwhile, in another important decision taken in the board meeting, to strengthen governance norms, the market regulator has decided to introduce special rights to unitholders of REITs and InvITs by providing the right to nominate representatives on the boards. Also, Sebi has decided to introduce the concept of a self-sponsored real estate investment trust (REIT) or an infrastructure investment trust (InvIT).

The board of Sebi approved amendments to rules to provide nomination rights to unitholders holding 10% or more of the total outstanding units of the InvIT/REIT, either individually or collectively, on the board of directors of the investment manager/ manager. This ensures pro-rata rights to all unitholders.

(Text input from PTI)


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 scrips, as per the consultation pa