Tatas, Hindujas among 40 groups with concentrated FPI holdings. Here’s the list

SEBI’s goal is to prevent violation of minimum public shareholding rules and opportunistic takeovers using the FPI route.

About 100 foreign portfolio investors have more than 50 percent of their Indian investments in a single corporate group. Such investments have been made in companies of about 40 groups, including the Hindujas, Adani, GMR, and the Tatas.

Such FPIs with concentrated holdings are defined as 'high-risk', by the regulator unless they are public retail funds, sovereign wealth funds or pension funds.

These ‘high-risk’ FPIs, as defined by SEBI, had investments of Rs 33,223 crore in the Adani group, Rs 18,210 crore in the Hinduja group, Rs 7,871 crore in the OP Jindal group, and Rs 2,301 crore in the Tata group as of March end, according to data culled by Prime Database.

These numbers are an under representation of opaque structures as they include only FPIs with greater than 1 percent holding in a company. According to the regulations, entities with less than 1 percent exposure in a company are not required to make any disclosure regarding their investments. The data is based on shareholding at the end of March quarter.

On June 29, the Securities Exchange Board of India said FPIs with 50 percent group concentration or those with more than Rs 25,000 crore invested in the Indian equity market will have to provide additional disclosures regarding their ownership, economic interest and control.

The FPIs include Societe Generale, Morgan Stanley, General Atlantic, Google and Warburg Pincus. Among the lesser-known FPIs are Albula Investment Fund, Cresta Fund, Moon Capital, ASN Investments, and Ishana Capital Master Fund.

According to the data, it is the lesser-known entities that have their entire India investment in a single group. Five FPIs – ASN Investments, Veda Investors, Deccan Value, A/D Investors Fund and C/D Investors Fund have 100 percent exposure to the GMR group.

Ishana Capital Master Fund, SFSPVI, and Dragsa have 100 percent exposure to the Hinduja group.

About 51 such entities have entire exposure to a single group.

Sebi has exempted government and government-related investors, pension funds, public retail funds and some listed exchange-traded funds from making the additional disclosures.

Sebi’s goal is to prevent violation of minimum public shareholding rules and opportunistic takeovers using the FPI route, and to plug gaps in the Prevention of Money Laundering Act and Foreign Institutional Investor Regulations.

According to Punit Shah, a partner at Dhruva Advisors, this will address a couple of situations. First, it will monitor and control foreign investments from certain neighbouring countries, which require government approval. Second, it is intended to track any roundtripping – the routing of promoters’ investments in group companies through FPIs.

Under Press Note 3, the government made prior approval mandatory for foreign investment from countries that share a land border with India. Sebi mentions this point in its regulation.

Why is tracking promoter investment important? According to dealers, several promoters set up offshore funds, register them as FPIs and use them to hold shares in their companies. This way, they end up with not only the promoter holding but a part of the public shareholding as well. These opaque structures make manipulation of prices easier.

This is why Sebi wants additional disclosures to establish the identity of the ultimate beneficial owners in the case of ‘high-risk’ FPIs, without any shareholding threshold or exception. While this is a step in the right direction, Moin Ladha, a partner at Khaitan & Co., said it might put off genuine FPIs.

“The basic idea of an FPI is portfolio investment. Not all investors – we are speaking of genuine investors – may be comfortable with the granular information required to be provided with respect to their portfolio investments,” he said.

According to Sebi’s estimates, about Rs 2.6 lakh crore, or about 6 percent of the total FPI equity assets and less than 1 percent of India’s equity market capitalisation, may potentially be identified as high risk, meeting either the 50 percent group concentration or the Rs 25,000 crore fund size thresholds.