Sebi paper asks ‘high risk’ FPIs with concentrated holdings to make more disclosures

Sebi releases consultation paper on FPI holdings.

The Securities and Exchange Board of India (Sebi) has floated a consultation paper mandating additional disclosures from certain Foreign Portfolio Investors (FPIs) to prevent violation of the minimum public shareholding rules and to ward off hostile takeover of Indian companies.

The Sebi paper said that 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, economic interest in, and control of such funds.

The market regulator has proposed that for now, high-risk FPIs, holding more than 50 percent of their equity assets under management in a single corporate group would have to comply with the requirements of additional disclosures up to the level of all natural persons and/ or Public Retail Funds or large public listed entities.

Some FPIs have been observed to concentrate a substantial portion of their equity portfolio in a single investee company or a group of companies. In some cases, these holdings are near static and maintained for a long time, Sebi has found.

“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 scrips,” the consultation paper said.

This is a developing story. Stay tuned for more updates.