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Sebi tightens disclosure requirements for FPIs, reduces IPO timeline

The Securities and Exchange Board of India (Sebi) on Wednesday tightened the disclosure requirements for foreign portfolio investors (FPIs) in a bid to get a better handle on them and prevent the possible circumvention of minimum public shareholding (MPS) and takeover norms.

The Sebi board also approved reducing the time period for the listing of shares in public issues from the existing six days to three days from the date of issue closure. It, however, deferred a decision on overhauling cost structures, or the so-called total expense ratio (TER), for the Rs 43-trillion mutual fund (MF) industry. The markets regulator mandated additional granular disclosures regarding ownership, economic interest, and control of FPIs who have more than half of their holdings in a single corporate group or hold equity assets of more than Rs 25,000 crore. Some entities such as sovereign funds, public retail funds, and exchange-traded funds (ETFs) have been exempted from making additional disclosures.

Existing FPIs now have three months to bring down their single-group exposure to 50 per cent or comply with additional disclosure requirements.

“Exemptions have been given to several entities…There could be a relatively small number of FPIs who would be required to make this additional disclosure,” Sebi Chairperson Madhabi Puri Buch told a press conference after the board meeting.

The changes approved by the Sebi board were proposed in a discussion paper in May amid a controversy around “opaque structures” of FPIs holding shares of Adani group firms. The allegations were levelled by US-based Hindenburg Research in a report in January.

In the paper, Sebi had estimated that FPI assets worth Rs 2.6 trillion, or 6 per cent, of their outstanding equity exposure in India could be impacted by the new rule.

In another key reform, the Sebi board shortened the timeline for initial public offerings (IPOs). Going ahead, a company coming out with an IPO will be able to list on the bourses in just three days after the closure of the issue.   

The move will help free up capital early and encourage more investors to participate.

Key changes

  • FPIs given only three months to comply with new norms as opposed to six months proposed earlier

  • Shorter IPO timeline of three days another global first after T+1 cycle

  • Proposal on MF total expense ratio deferred after in-depth discussions; Sebi will float another discussion paper

  • Measures on REIT and InvIT will boost capital raising

“The shorter IPO timeline is another global first. We recently moved to T+1, and it is something most jurisdictions are yet to implement. We are hopeful that the move to T+3 will also be without any glitch. At the end of the day, time is money, and with this process, we will give market participants a lot of money in the form of three days,” Buch said.

Earlier this year, the market regulator successfully halved the trade settlement cycle from two days to just one day.

The move to defer the TER changes will come as a relief for the MF industry as the new framework was expected to weigh on their margins. Buch said the board discussed the issue in depth and decided that Sebi would float another discussion paper following the new data presented by the industry. The industry would be happy to see the new proposals, she added.

To boost REITs and InVITs, Sebi introduced the concept of self-sponsored investment managers. The move provides the original sponsor of a REIT and InVIT to obtain full exit. Currently, the original sponsor has to find another sponsor in order to gain full exit. Going ahead, the sponsor can opt for a self-sponsored investment manager.

“REITs and InVITs are important products through which capital raising can be done in our markets. There is a significant interest from capital providers, including overseas providers,” said Buch.

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