Markets regulator SEBI has prescribed that additional disclosures shall not be required to be made by FPIs in case their investments are realigned with the prescribed thresholds.
The provisions of this circular shall come into force with effect from November 1, 2023, SEBI said.
The background to the additional disclosures is that 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 such as that of disclosures under Substantial Acquisition of Shares and Takeovers Regulations, 2011 (SAST Regulations) or maintaining Minimum Public Shareholding (MPS) in the listed company.
Recognising the inherent risks of opportunistic takeover/acquisition of Indian companies, the Government of India (GoI) had issued Press Note 3 (PN3) dated April 17, 2020, requiring an entity of a country that shares land border with India, or where the Beneficial Owner (BO) of an investment into India is situated in or is a citizen of any such country, to invest only under the government route.
While PN3 is not applicable to FPI investments, there are concerns that entities with large Indian equity portfolios could potentially disrupt the orderly functioning of Indian securities markets by misusing the FPI route, SEBI said.
SEBI has prescribed that in case of FPIs holding more than 50 per cent of their Indian equity AUM in a single Indian corporate group, the timeline is 10 trading days from the date on which such FPIs exceed the threshold.
Such FPIs shall not make fresh purchases of the equity shares of any company belonging to such Indian corporate group during the next 30 calendar days from the date on which the FPIs exceeded the threshold, SEBI said in a circular.
FPIs, including their investor group, holding more than Rs 25,000 crore of equity AUM in the Indian markets have been given a timeline of 90 calendar days from date on which such FPIs exceed the threshold.
Accounts of all FPIs, individually or belonging to such investor group, shall be blocked for further equity purchases until the holding is brought below Rs 25,000 crore of equity AUM in the Indian markets.
FPIs required to make disclosures as on the date of applicability of this circular have been given 90 calendar days from the date of applicability of this circular.
After realignment, in case the FPI’s holdings exceed the prescribed threshold on a subsequent date, the timeline for the FPI to realign with the limits shall restart from such subsequent date.
FPIs whose investments continue to exceed the prescribed threshold post expiry of timelines shall make the disclosures to their DDPs within 30 trading days from the expiry of such timelines.
Non-disclosures in this regard 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, SEBI said.
During the aforementioned 180 calendar days, the investee companies shall restrict the FPI’s 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.
Depositories shall introduce new freeze reason codes and stock exchanges shall put in place appropriate mechanisms/systems to ensure compliance of the above and to facilitate blocking of the accounts of the FPIs.
For monitoring compliance with the 50 per cent exposure limit in a single corporate group, a repository containing names of companies forming a part of each Indian corporate group, shall be publicly disseminated on the websites of stock exchanges/depositories.