Even as the deadline to disclose the beneficial owners of holdings in foreign portfolio investors (FPIs) to the Securities and Exchange Board of India (SEBI) ends on September 9, some of these foreign investors have sought legal recourse to keep away from adhering to the regulations.
Two Mauritius-based foreign portfolio investors (FPIs) — LTS Investment Funds and Lotus Global Investment — have moved the Securities Appellate Tribunal, seeking urgent relief from complying with Sebi’s new foreign investor norms. These two FPIs were mentioned in the January 2023 report on the Adani Group by US-based short-seller Hindenburg Research.
According to these FPIs, Sebi’s directions to comply with certain conditions that did not apply to other FPIs have discriminated their investors. They have sought time until March 2025 to meet these norms.
In August last year, markets regulator Sebi had asked FPIs, holding more than 50 per cent of their equity AUM (assets under management) in a single corporate group or with an overall holding in Indian equity markets of over Rs 25,000 crore, to disclose granular details of all entities holding any ownership, economic interest, or exercising control in the FPI. The norms were announced to prevent the possible round tripping by certain promoters using the FPI route.
LTS Investment Fund’s asset is nearly $1.5 billion, as per the Hindenburg Research’s January 2023 report.
Sebi said certain FPIs have been observed to hold concentrated portion of their equity portfolio in a single investee company/ corporate group. Such concentrated investments raise the concern and possibility that promoters of such investee companies/ corporate groups, or other investors acting in concert, could be using the FPI route for circumventing regulatory requirements such as that of disclosures under Substantial Acquisition of Shares and Takeovers Regulations, 2011 (SAST Regulations) or maintaining Minimum Public Shareholding (MPS) in the listed company.
The sell-off in the market in August can be attributed to the final deadline for FPIs to disclose their beneficial owners to the Sebi.
FPIs pulled out Rs 20,339 crore from the market in August this year. “Failure to meet this requirement would result in FPIs being disqualified from investing in India, necessitating the liquidation of their holdings. This regulatory pressure has led many FPIs to sell off their investments, causing a broad decline in the stock market,” said Ameya Ranadive CMT CFTe, StoxBox.
The regulator said granular details of all entities holding any ownership, economic interest, or exercising control in the FPI will have to be provided by FPIs. While economic interest means returns from the investments made by the FPI, ownership interest means ownership of shares or capital of the entity or entitlement to derive profits from the activity of the entity.
FPIs holding more than 50 per cent of their Indian equity assets under management (AUM) in a single Indian corporate group or holding over Rs 25,000 crore of equity AUM in the Indian markets are required to disclose details, it said.
In a consultation issued in May last year, Sebi had said that based on the data as of March 31, 2023, FPI assets under management of around Rs 2.6 lakh crore may potentially be identified as high-risk FPIs who would have to make additional disclosures.
Sources said FPIs which may be required to provide enhanced disclosures are expected to be significantly less than estimated in the consultation paper and the Sebi board note.