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

Sebi releases consultation paper on FPI holdings.

The Securities and Exchange Board of India has floated a consultation paper mandating additional disclosures from certain Foreign Portfolio Investors (FPIs) to prevent violation of Minimum Public Shareholding rules and to guard against possible misuse of the FPI route for opportunistic 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, an economic interest in, and control of such funds.

The regulator has proposed that for now, 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 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/ company group. In some cases, these concentrated holdings have also been near static and maintained for a long time,” the SEBI consultation paper said.

“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 paper said.

Also, SEBI has proposed that existing high-risk FPIs with an overall holding in Indian equity markets of over Rs. 25,000 crore shall also be required to comply with additional granular disclosure requirements within 6 months, failing which the FPI should bring down its AUM Rs 25,000 crore within that time frame.

“The additional disclosure would include 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. Further, any material change in the same also needs to be communicated by the FPIs to their designated depositary participants within 7 working days of such change,” the SEBI paper said.

SEBI has classified government and government-related entities such as central banks, sovereign wealth funds, etc. as low risk FPIs since the ownership, economic and control interest in such entities is known due to predominant ownership by the Government of the respective country.

Pension Funds or Public Retail Funds have been defined as moderate-risk FPIs. All FPIs that do not fufill the above criteria are classified as high risk FPIs.