In the aftermath of the allegations by Hindenburg Research against Adani Group, market regulator Securities and Exchange Board of India (SEBI) has initiated measures to strengthen its oversight of foreign portfolio investors (FPIs) to prevent Indian promoters from bypassing the minimum public shareholding (MPS) norm, reported Hindu Business Line.
SEBI proposes mandating FPIs categorised as high risk and those holding significant stake in a single group to disclose beneficial owners to prevent gaming the public shareholding norm.
FPIs backed by government and government related entities such as central banks, sovereign wealth funds, pension funds or public retail funds are to be excluded.
FPIs with more than 50 per cent of their equity asset under management in a single corporate group would be required to provide granular data of all entities with any ownership, economic interest, or control rights on a full look through basis, up to the level of all natural persons and/or public retail funds or large public listed entities.
Further, any material change in the same also needs to be communicated by the FPIs.
“Some FPIs have been observed to concentrate a substantial portion of their equity portfolio in a single investee 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 MPS. If this were the case, the apparent free float in a listed company may not be its true free float, increasing the risk of price manipulation in such scrips,” SEBI said.
The move comes after the Hindenburg Research report alleged that some FPIs that have significant stake in Adani Group firms are backed by entities close to the group promoters themselves thus violating the public shareholding norm. SEBI, in its investigation, has not been able to prove this because existing rules do not require FPIs to disclose their final beneficiary.