Two Mauritius-based foreign portfolio investors (FPIs) have filed appeals with the Securities Appellate Tribunal (SAT) seeking relief on the deadline of September 9 to liquidate holdings beyond the specified thresholds set by the market regulator, the Securities and Exchange Board of India (Sebi).
As per the information on the tribunal website, Lotus Global Investment and LTS Investment Funds filed two separate pleas with the tribunal on August 20. The matter is likely to be heard on Tuesday, according to legal sources.
Incidentally, both these funds were flagged as suspicious by short-seller Hindenburg Research in its report against the Adani group.
“Though the funds are not in breach of the thresholds specified by Sebi, they have not been given exemption from providing additional disclosures. These funds are now requesting an extension of the timeline to liquidate their holdings and are not seeking an exemption from disclosures,” said a person with direct knowledge of the development.
Sebi’s disclosure regime was brought in amidst concerns that the FPI route could be used to circumvent minimum public shareholding norms.
Sebi had given non-compliant FPIs, which fail to provide detailed ownership disclosures, a deadline of September 9 to offload their excess holdings and rectify their breach. There was a buzz on Friday that certain overseas funds were resorting to selling their holdings ahead of Monday’s headline. Provisional data provided by the stock exchanges showed gross selling of $2.1 billion and gross buying of $2.01 billion, translating into a net outflow of $7.4 million (Rs 621 crore) on Friday.
Regulatory officials have been reiterating that the implementation of additional disclosure norms has been smooth with a long glide path given to investors. They said provisions have been made in the guidelines to stop the “bad” players without hurting the “good” players.
Sources said that several other FPIs, which are in default of the August 2023 circular of Sebi, had applied for exemptions but have not been granted any relief.
Emailed queries sent to Sebi did not elicit any response till the time of press.
Following a February rule change, some FPIs from Mauritius and Cayman Islands—previously exempt from certain requirements—are now navigating a ‘regulatory flux’ after losing their exempt status.
However, the regulator has stepped up to ease certain compliance issues.
“Until June 2024, there was no specific framework within the regulations to deal with cases where FPIs have ceased to be ‘eligible’ for continuing with their registration, and such FPIs until June 5, 2024, were not allowed to dispose/sell their securities, since their accounts were blocked. The June 2024 amendments came in as a breather for those FPIs, which may now be allowed to liquidate their positions within 180 days without penalty and wind up their India registration,” said Divaspati Singh, Partner, Khaitan & Co.
Singh added that a global fund with less than 2 per cent of its overall AUM in India may also have breached the concentration limit because of exposure in a single stock, though at the global AUM level, the Indian stock may not have been material.
“By categorising ‘material change’ into two types with different timelines for intimation and submission of supporting documents, Sebi has provided a more practical and manageable framework for FPIs,” said Kunal Sharma, Partner, Singhania & Co.
The market regulator had mandated disclosures on a granular level of ownership and economic benefits by FPIs who either have over 50 per cent exposure (of India equity assets) in a single corporate group or above Rs 25,000 crore holding in the Indian equities market—and do not fall in any of the exemption criteria.
“While the broader market impact has been limited, these regulatory changes have driven modest portfolio rebalancing and restructuring to ensure conformity. Furthermore, the recent flexibility from Sebi regarding the post-expiry of registration has been a significant breather for FPIs, offering them additional time to adjust their holdings and structuring considering the new disclosure requirements,” said Ketan Mukhija, Senior Partner, Burgeon Law.
The market regulator has also proposed to bring offshore derivative instruments (ODIs), popularly known as P-notes, under the disclosure regime.
First Published: Sep 06 2024 | 7:11 PM IST
