Few FPIs Seek Legal Route to Dodge Sebi Norms; Deadline to Disclose BO Expires on Monday

Some FPIs have sought legal avenue to avoid complying with rules requiring disclosure of ultimate beneficial ownership (BO) to the markets regulator Sebi as the deadline expires on Monday.

Two Mauritius-based foreign portfolio investors -- LTS Investment Fund and Lotus Global Investment -- have reportedly approached the Securities Appellate Tribunal (SAT) to seek urgent relief from adhering to Sebi's new norms for foreign investors.

These two FPIs were named in the January 2023 report on Adani Group by the US-based short-seller Hindenburg Research.

They have asked SAT to direct Securities and Exchange Board of India (Sebi) to give more time to meet these rules.

Sebi set a deadline of September 9 for non-compliant FPIs that fail to provide detailed ownership disclosures to sell off their excess holdings and correct their violations.

On Friday, there were rumours that some overseas funds were rushing to sell their holdings ahead of Monday's deadline.

"Even though Sebi's deadline for disclosure of beneficial owners in FPI holdings ends on Monday, September 9, it is learnt that two FPIs have moved the appellate tribunal SAT seeking time till March 2025 to meet these norms. Therefore, the verdict from SAT is awaited.

"If the verdict comes in their favour, that will not impact the market. Otherwise there may be some selling pressure from these FPIs which might impact the market marginally. Sebi enforcing these norms is a healthy and desirable trend that will make FPI investment completely transparent," V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

In August 2023, Sebi came out with a circular, whereby it directed FPIs with over 50 per cent of their equity assets under management (AUM) in a single corporate group, or with total holdings in Indian equity markets exceeding Rs 25,000 crore, to disclose detailed information on all entities that have any ownership, economic interest, or control in the FPI.

These regulations were introduced to prevent potential round-tripping by certain promoters through the FPI route.

The move by Sebi had its genesis in the Adani issue where the markets regulator could not identify the beneficial owners of some foreign portfolio investments in Adani stocks since the existing regulations were lax in identifying the true owners of many investments.

These framework, though effective from November 1, 2023, provided a time frame of 90 calendar days for existing FPIs to re-adjust their holdings.

It suggested that FPIs had time till  January-end 2024 to realign their investment within the threshold prescribed in a bid to avoid providing the details of the beneficial owner as required.

Going by the circular, FPIs whose investments continue to exceed the prescribed threshold after the expiry of the timeline will be given 30 trading days to make disclosures, after which their registration will become invalid.

The FPI will then liquidate its securities and exit the Indian securities market by surrendering its registration within 180 calendar days from the day the certificate becomes invalid, according to the circular.

During these 180 days, the investee companies will restrict the FPIs' voting rights to its actual shareholding or its shareholding corresponding to 50 per cent of its equity AUM on the date its FPI registration is rendered invalid, whichever is lower.

"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,”  the Sebi circular stated.

On Sunday, the Congress said that Sebi investigation into "the Adani Group's brazen attempt" to bypass regulations is still languishing and the capital markets regulator has a lot to explain.

"Two Mauritius-based foreign portfolio investors (FPIs), a part of the revelations in the still-unfolding 'Modani' mega scam, have now petitioned the Securities Appellate Tribunal, seeking urgent relief from complying with Sebi's new foreign investor norms before the September 9th deadline," Congress general secretary in-charge communications Jairam Ramesh had stated.

Both the FPIs are alleged to be violating rules that require investors to not be over-invested in a single stock, he had said.

These rules are meant to ensure that black money routed through tax havens does not flood back into Indian capital markets, Ramesh had said, adding they must be upheld at all costs.