SEBI Proposes Changes To Rules For Foreign Investors

On Tuesday, the Securities and Exchange Board of India came up with proposals to make changes to the rules that foreign investors must follow when disclosing their investments.

One notable suggestion is to exempt university funds and endowments from providing extra information. These funds, which get money from different donors, usually use the returns for the university's benefit.

Since they don't pay taxes in their home countries, they have to follow certain rules to make sure the funds are used as intended. The proposed change aims to make it easier for these funds to invest without having to share more details.

The conditions for this include factors like the fund's size, how long it has been around, its reputation, tax status, and how it discloses its holdings. Moreover, if a university-related endowment has been in existence for more than five years and is in a country that is a member of the Financial Action Task Force (FATF), it may also be exempt.

However, there are additional conditions, such as the university being in the top 200 rankings, its India investments being less than 25% of its total global investments, having more than Rs 10,000 crore in global investments, and proving its non-profit status and tax exemption through appropriate filings.

The other proposal is about giving some exceptions for companies that don't have a clear owner and don't have many foreign investors. There is concern about some FPIs concentrating a significant part of their investments in a single company or corporate group.

This concentration might persist for an extended period, leading to worries that the promoters of these corporate groups or other investors working together might be using the FPI route to avoid regulatory requirements or ensure minimum public shareholding (MPS) in the listed company.

If this is the case, the apparent free float (shares available for trading) of a listed company may not truly represent its real free float, increasing the risk of price manipulation for those stocks.

For listed companies without an identified promoter, where the ownership is considered "public," there is a suggestion to relax additional disclosure requirements for FPIs that have concentrated positions in such companies. However, concerns about potential circumvention of regulations persist.

Under the current rules, any investor acquiring more than 5% shares or voting rights in a listed company, along with related individuals (PAC), must disclose this information. Further disclosures are required for changes in ownership of 2%, and if the ownership exceeds 25%, an open offer is mandatory.

The proposed change aims to ease reporting for FPIs, with over 50% of their investments in Indian companies grouped together.

Even if the FPI ignores its holdings in the main company without an identified promoter, it would still need to comply with the disclosure requirements outlined in the August circular.

This is because, despite the absence of an identified promoter in the main company, the FPI has a substantial part of its investments in related companies within the group that do have an identified promoter.

The August circular of 2023 introduced additional disclosure requirements for foreign portfolio investors (FPIs) meeting specific criteria.

FPIs meeting conditions like holding over 50% of their Indian equity assets in a single corporate group or having equity assets exceeding Rs 25,000 crore in the Indian markets are required to provide detailed information about entities holding ownership or control in the FPI.