Adani row: Sebi proposes sweeping changes in FPI disclosure norms


Sebi has proposed to categorise FPIs in three categories – Low Risk, Moderate Risk and High Risk; aims to enhance disclosure for FPIs that have concentrated holding in a single company or corporate group.

As part of its attempts to address some of the systemic issues that came to the fore post the Adani Group issue, capital markets regulator the Securities and Exchange Board of India (Sebi) has taken the first step to enhance the transparency quotient of investors especially those that have concentrated holding in one single group. 

In a consultation paper issued on Wednesday, Sebi has proposed additional disclosure requirement for certain types of foreign portfolio investors (FPIs) that, in the view of the capital market watchdog, could be acting in concert with the promoters or other investors in a company to circumvent the requirement related to minimum public shareholding norms. 

The suggestions stem from the fact that the current regulations, at times, are unable to identify the ultimate beneficial owner of the FPI that is owning the shares.  

Incidentally, the extant disclosure framework for identifying the beneficial owner is based on the Prevention of Money Laundering Act, 2002 and the Prevention of Money Laundering (Maintenance of Records Rules), 2005. 

“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),” stated the Sebi consultation paper. 

“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,” it added. 

This assumes significance as recent reports have highlighted the fact that some FPIs holding shares in Adani Group companies are believed to have the bulk of their India exposure in only Adani Group companies. 

The Hindenburg report has also alleged that some of these FPIs are just front of the promoter entities – an allegation that has been strongly refuted by the Gautam Adani-owned diversified conglomerate. 

Sebi, meanwhile, has proposed obtaining granular information from such FPIs that have “concentrated equity holdings in single companies or business groups”. 

“… it is proposed that enhanced transparency measures for fully identifying all holders of ownership, economic, and control rights may be mandated for certain objectively identified high-risk FPIs that fulfil certain criteria,” states the Sebi paper. 

Sebi has further proposed to categorise FPIs in three categories – Low Risk, Moderate Risk and High Risk. 

“… it is proposed that high-risk FPIs, holding more than 50 per cent of their equity Asset Under Management (‘AUM’) in a single corporate group would be required to comply with the requirements for additional disclosures,” stated the Sebi paper while adding that “… any material change… needs to be communicated by the FPIs… within 7 working days of such change.” 

It has further proposed that FPIs that currently have more than 50 per cent concentration in a single corporate group can be provided a window of six months to bring down the exposure below 50 per cent. 

“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,” stated the Sebi consultation paper. 

Interestingly, a Sebi analysis showed that FPI assets under management (AUM) of only around Rs 2.6 lakh crore — around six per cent of the total FPI equity AUM and less than one per cent of India total equity market capitalisation — may potentially be identified as high-risk FPIs. 


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