Adani row: Sebi tightens disclosure rules for FPIs

The Securities and Exchange Board of India (Sebi) has mandated additional disclosures for foreign portfolio investors (FPIs) that hold a significant part of their Indian equity holdings in a single corporate group. 

In a circular issued on Thursday, the capital market watchdog introduced additional norms related to disclosure of beneficial owners for FPIs holding more than 50 per cent of their Indian equity assets under management (AUM) in a single Indian corporate group or those that individually, or along with their investor group, hold more than ₹25,000 crore worth of Indian stocks. 

“Granular details of all entities holding any ownership, economic interest, or exercising control in the FPI, on a full look through basis, up to the level of all natural persons, without any threshold, shall be provided by FPIs,” stated the Sebi circular. 

This assumes significance as reports have highlighted the fact that some FPIs holding shares in Adani Group companies are believed to have the bulk of their India exposure in only Adani Group companies. 

Earlier this year, the Hindenburg report had also alleged that some of these FPIs are just front of the promoter entities – an allegation that has been strongly refuted by the Gautam Adani-owned diversified conglomerate. 

“Certain FPIs have been observed to hold concentrated portion of their equity portfolio in a single investee company/corporate group. Such concentrated investments raise the concern and possibility that promoters of such investee companies/corporate groups, or other investors acting in concert, could be using the FPI route for circumventing regulatory requirements,” stated the latest Sebi circular. 

“… a need was felt to obtain granular information of persons having any ownership, economic interest, or control in some objectively identified FPIs,” added the Sebi circular. 

Meanwhile, Sebi has also mandated certain timelines for FPIs for making the requisite disclosures and, more importantly, has said that failure to comply with the timelines could even lead to cancellation of the registration of the FPI. 

“Non–disclosures… shall render the registration of the FPI invalid and the FPI shall not make any further purchases. Further, the FPI shall liquidate its securities and exit the Indian securities market by surrendering its FPI registration within 180 calendar days from the day the certificate becomes invalid,” stated the Sebi circular. 

Incidentally, the investee companies have also been directed to restrict the FPI voting rights during the 180 days period mentioned above. 

Sebi, however, has also added that FPIs having a broad based, pooled structure with widespread investor base, ownership interest by government or government related investors, may not pose significant systemic risk and hence have been exempted from the additional disclosure norms. 

The new norms will come into effect from November 1.