19 Sep 2023
The Securities and Exchange Board of India (SEBI) has cited concerns about the possible misuse of the Foreign Portfolio Investor (FPI) route by certain FPIs. It has observed that in cases where promoters of Indian entities indirectly hold substantial shareholding in their own companies through FPI entities (i.e., concentrated portion of the FPI’s equity portfolio is in a single investee company or corporate group), the promoters and Indian investors could potentially circumvent the disclosure requirements prescribed under SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 or the requirement to maintain minimum public shareholding in the listed entity. SEBI also recognised the possibility of the same natural person holding significant aggregate economic interest in an FPI through various investment entities, each of which being below the threshold prescribed under the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 for identification of beneficial owners.
In a move to address the risks arising from such concentrated investments and to promote transparency in the identification of the beneficial owners of FPIs, SEBI issued a circular on 24 August 2023 (Circular) requiring FPIs which fulfil the prescribed criteria (discussed below) to make certain additional disclosures to their Designated Depository Participants (DDP). These include details of entities which hold any ownership or economic interest or exercise control in the FPI up to the level of all natural persons, irrespective of the quantum or amount of such interest or control. Such disclosures will also be considered ‘material information’ in terms of regulation 22(1)(c) of the SEBI (Foreign Portfolio Investors) Regulations, 2019 (FPI Regulations) till the time the FPI’s holdings are more than the threshold prescribed in the criteria for making these disclosures.
This Circular follows recent amendments made to the FPI Regulations requiring FPIs to provide information or documents in relation to persons with any ownership, economic interest, or control in the FPI in the manner specified by SEBI.
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