SEBI and RBI lock horns on FII issue

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FIIs chasing real estate developers may get a New Year boost from the government. The department of industry is seeking a clarification from the cabinet on whether FII investments in real estate should be governed by FDI norms. SEBI and the RBI are on opposing sides of the debate reports CNBC-TV18.

 

Responding to clarifications sought by real estate developers, the government has moved a cabinet note on whether the conditions for FDI in the real estate sector are applicable to FIIs.

 

Market regulator SEBI says that all investments by FIIs in the real estate sector should be governed by the Portfolio Investment Scheme and be distinct from Foreign Direct Investment.

 

Which means that FII investment in pre IPOs, IPOs, pre Follow On Public Offers and FPOs will not be subject to a minimum lock in period of three years as stipulated for FDI holdings in the real estate sector. But the Reserve bank disagrees.

 

The RBI says that a pre IPO offer is the same as a private placement or preferential allotment, which is subject to a lock in period under SEBI regulations. RBI argues that for investments in real estate, all investors in the IPO and especially in pre IPO need to be treated as FDI and comply with a three-year lock in period.

 

SEBI argues that no distinction has been made between FIIs participating in an IPO or a pre IPO under FEMA regulations and therefore the RBI's views do not adhere to the provisions of the Portfolio Investment Scheme. The Department of Industry is now seeking the cabinet's approval to clarify if investment by FIIs in real estate IPOs should be treated as FDI.

 

The government will issue a certificatory press note within a week of cabinet approval. Sources say that the same test will apply for FII investment in banking and insurance.