The Securities and Exchange Board of India (Sebi) has come up with a consultation paper mandating additional disclosures from some Foreign Portfolio Investors (FPIs) to prevent violation of the minimum public shareholding rules and to ward off hostile takeover of Indian companies. The objective of the paper is to enhance trust in the Indian securities markets by mandating additional granular disclosures around ownership of, economic interest in, and control of objectively identified high-risk Foreign Portfolio Investors (FPIs) that have either concentrated single group exposures and/ or significant overall holdings in their India equity investment portfolio.

SEBI noted that some FPIs have been observed to concentrate a substantial portion of their equity portfolio in a single investee company/ company group. In some cases, these concentrated holdings have also been near static and maintained for a long time. Such concentrated investments raise the concern and possibility that promoters of such corporate groups, or other investors acting in concert, could be using the FPI route for circumventing regulatory requirements such as that of maintaining Minimum Public Shareholding (MPS).

For now, it is proposed that high-risk FPIs, holding more than 50% of their equity Asset Under Management (‘AUM’) in a single corporate group would be required to comply with the requirements for additional disclosures. New FPIs that have just begun investments will be allowed to cross the 50% group concentration threshold up to a period of 6 months without the need for additional disclosures becoming effective. Beyond 6 months, however, any crossing of the 50% concentration threshold by such FPIs will trigger the requirement for additional disclosures.

On an ongoing basis, high-risk FPIs that momentarily breach the 50% group concentration investment threshold will be provided a window of 10 days to bring down such Concentration, before the additional disclosure requirements become effective. Failure to provide such additional granular disclosures wherever required will render the FPI registration invalid. Such FPIs would be required to wind down within 6 months.

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