Ease of doing business: Sebi mulls relaxing enhanced disclosure framework for certain FPIs

New Delhi: Capital markets regulator Sebi on Wednesday proposed relaxing rules for certain Foreign Portfolio Investors (FPIs) from enhanced disclosure requirements in a bid to promote ease of doing business.

In its consultation paper, the regulator suggested exempting category I university funds and university-related endowments FPI that meet specific criteria from enhanced disclosure requirements.

Additionally, it proposed exempting funds with concentrated holdings in entities without a promoter group, where there is no risk of breaching Minimum Public Shareholding (MPS) requirements, from enhanced reporting obligations.

The Securities and Exchange Board of India (Sebi) has sought comments till March 8 from the public on the proposals.

This came after Sebi, in August last year, mandated FPIs to disclose detailed information about entities holding any ownership, economic interest, or control in them, without any threshold.

This granular disclosure framework required for FPIs meeting either of the following criteria-- FPIs holding over 50 per cent of their Indian equity Assets Under Management (AUM) in a single Indian corporate group or individually, or along with their investor group, holding more than Rs 25,000 crore of equity AUM in the Indian markets.

However, certain FPIs, including those having a broad-based, pooled structure with a widespread investor base or those having ownership interest by the government were exempted from such enhanced disclosure requirements, subject to certain conditions.

In its consultation paper, Sebi has recommended to exempt university funds and university-related endowments, registered as category I FPI from the disclosure requirements, subject to certain conditions.

This condition included the university should be listed in the top 200 ranking as per the latest available QS World University Rankings, such funds' India equity AUM should be less than 25 per cent of its global AUM, its global AUM should not be over Rs 10,000 crore and should have filed appropriate return to the respective tax authorities in their home jurisdiction to evidence that the entity is in the nature of a non-profit organisation and is exempt from tax.

The conditions are "proposed in order to ensure that the exemption is not misused through setting up of endowments for lesser known universities in jurisdictions where no or minimal disclosures are available. Further, the AUM criteria are being prescribed to ensure that only the well-funded and diversified funds are eligible for the exemption," Sebi said.

Proposing exemption in case of companies with no identified promoter and low FPI holdings, Sebi said that in case of listed companies without any identified promoter, the entire shareholding is classified as "public" and there is no risk of circumvention of MPS requirements. To that extent, there is room for relaxing the additional disclosure requirements for FPIs holding concentrated positions in such companies. However, the concerns regarding circumvention of SAST (Substantial Acquisition of Shares and Takeovers) norms would still persist, Sebi said.

Under the SAST requirements, any investor along with Persons Acting in Concert (PAC), acquiring more than 5 per cent shares or voting rights in a listed company is required to make the disclosures prescribed therein. Disclosures are further to be made for either increase or decrease in holding of 2 per cent thereafter. Further, holdings above 25 per cent would require an open offer to be made. Further, Sebi noted that the potential risk of circumvention of SAST regulations through the FPI route is mitigated by the adoption of an acceptable risk threshold of 3 per cent holding as against the SAST thresholds. "As long as the composite holdings of all such FPIs in the apex company (with no identified promoter) in the group is less than 3 per cent of the total equity share capital of the company, it would be exempted from the additional disclosure requirements.

Custodians and depositories will track the utilisation of this 3 per cent limit for companies without an identified promoter at the end of each day.