MUMBAI: Capital market regulator Securities and Exchange Board of India (Sebi) on Monday released a consultation paper that proposes to enhance measures for foreign portfolio investors (FPIs) to prevent violation of public float norms.
FPIs with assets under management (AUM) of over Rs 25,000 crore in Indian equities, or over 50 per cent of equity AUM in a single group will have to make additional disclosures, according to the consultation paper.
The consultation comes amid Sebi’s investigation of suspected violations by offshore funds in Adani Group firms after short-seller Hindenburg Research released a report earlier this year alleging financial irregularities in Adani companies.
“For now, it is proposed that high-risk FPIs, holding more than 50 percent of their equity Asset Under Management in a single corporate group would be required to comply with the requirements for additional disclosures,” noted the consultation paper. “Such FPIs shall be required to provide granular data of all entities with any ownership, economic interest, or control rights on a full look – through basis, up to the level of all natural persons and/ or Public Retail Funds or large public listed entities,” it added.
Further, any material change in the same also needs to be communicated by the FPIs within seven working days of such change.
High-risk funds would need to identify all holders with economic and controlling rights. All funds except for those owned by the government, sovereign wealth funds, pension funds and public retail funds would be considered high-risk offshore funds.
Sebi estimates around 6 percent of total FPI equity AUM, and less than 1 per cent of India total equity market capitalisation may come conder the category of high-risk FPIs.
“Based on the data as of March 31, 2023, and on certain assumptions, we estimate that FPI AUM of around Rs2.6 lakh crore may potentially be identified as high-risk FPIs that meet either of the 50 per cent group concentration or the Rs 25,000 crore fund size thresholds,” note the paper.
Failure to provide such additional granular disclosures wherever required will render the FPI registration invalid. Such FPIs would be required to wind down within six months.
“Overall, to minimise any inconvenience to the FPI ecosystem, only a limited number of objectively identified high-risk FPIs with either concentrated single group equity exposures or significant equity holdings will be mandated to provide additional granular disclosures around the ownership of, an economic interest in, and control of such funds,” Sebi said.