Sebi: Sebi to tighten disclosure norms for high-risk FPIs – Times of India

MUMBAI: In an attempt to tighten disclosure norms for ‘high-risk’ foreign funds with concentrated holdings, markets regulator Sebi has sought to ask such investors to identify the ultimate owners of the stocks they own. The regulator has floated a consultation paper to push transparency and prevent promoters of listed companies from circumventing minimum public shareholding norms.
According to the paper, foreign portfolio investors (FPIs) barring some like sovereign wealth funds and pension funds can be categorised as ‘high risk’.

The move comes after four Mauritius-based FPIs were found to have invested almost all of their capital in Adani Group stocks. These four FPIs – Elara India Opportunities Fund, Cresta Fund, Albula Investment Fund and APMS Investment Fund – were named in the Hindenburg report, which alleged that these Mauritius entities were used to jack up prices of Adani stocks. In a subsequent probe, Sebi was unable to zero in on the ultimate owners of large investments in Adani Group companies.
The proposed amendments would result in “disclosure down the rabbit hole to find the final beneficial owner in certain high-risk investor categories, as defined by Sebi”, said Sandeep Parekh, managing partner, Finsec Law Advisors, a securities law firm.
Sebi noted in the paper that some FPIs were found to have invested a substantial portion of their equity portfolio in a single investee company/company group. “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,” the paper noted. In such instances, the apparent free float in a listed company may not be its true free float which in turn could increase the risk of price manipulation in those scrips, Sebi said.
Minimum public shareholding rules require that promoters should not hold more than 75% stake in a listed company. However, there are some exceptions to this rule for recently listed companies.
Sebi suggested categorising FPIs based on risk. Government, central bank and sovereign wealth funds could be categorised as ‘low risk’, pension and public retail funds could come under ‘moderate risk’ category. The remaining FPIs could be termed as ‘high risk’. All ‘high risk’ FPIs holding more than 50% of their equity assets under management (AUM) in a single corporate group, would be required to comply with the requirements for additional disclosures.
Parekh, a former executive director, at the regulatory body feels the move is could face some challenges in terms of enforcement.
“While the depository participant is obliged to get the details of the final person/fund/listed company, there is also an obligation of obtaining economic interest or control. Since these could be done by private agreements, the obligation would really be on the FPI, with no ability of the depository participant to go beyond the legal ownership.”