Enhanced Disclosure Requirements From FPIs

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Oct 19, 2023

Enhanced Disclosure Requirements From FPIs

SEBI, by way of Notification dated August 10, 2023, had amended the SEBI (Foreign Portfolio Investors) Regulations, 2019 to enhance disclosure requirements for FPIs fulfilling certain criteria to be prescribed by SEBI (‘Qualifying FPIs’), with the aim to address concerns that certain FPIs hold a concentrated portion of their equity portfolio in a single investee company/ corporate group through the FPI route in order to circumvent, inter alia, the provisions under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, Press Note 3 dated April 17, 2020, issued by the Government of India, or the requirement of maintaining minimum public shareholding in a listed entity. The amendments require Qualifying FPIs to provide granular details of all entities, including natural persons, with any ownership, economic interest, or control in such FPI.

By way of Circular dated August 24, 2023, SEBI has specified the following criteria, effective from November 01, 2023, to determine Qualifying FPIs:

i. FPIs holding over 50% of their Indian equity assets under management (‘AUM’) in a single Indian corporate group; and

ii. FPIs who, individually or within their investor group, hold more than INR 25,000 crore (approx. US$ 3 billion) of equity AUM in Indian markets.

The Circular only sets out the broad principles relating to determination of Qualifying FPIs, exemptions provided to certain categories of Qualifying FPIs, etc. and provides that a Standard Operating Procedure (‘SOP’) will be framed and issued in consultation with SEBI which will provide detailed mechanism for independently validating conformance with the conditions and exemptions provided in the Circular. The SOP has yet not been issued.

The Circular also inter alia prescribes timelines for Qualifying FPIs to align their holdings with the prescribed thresholds, in which case they will not be required to make the additional disclosures. Failure to comply with disclosure requirements can inter alia result in the FPI registration being invalid and such an FPI will be required to liquidate its securities and exit the Indian securities market by surrendering its FPI registration within 180 days from the day the certificate becomes invalid.

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