FPIs start process of falling in line

FPIs start process of falling in line

News:

1.Foreign funds across the globe which invest in Indian equity markets, have started restructuring their ownership and management structure to comply with the SEBI’s diktat.

Important facts:

2. Background:

• There are more than 9,100 FPIs registered with SEBI.
• FPIs own securities worth atleast $425 billion in Indian equities.
• Most FPIs are from USA, Mauritius, Singapore and Luxembourg.
• Many FPIs have NRIs or PIOs listed as fund manager/beneficial owners.
• On April 10th, SEBI issued new structural guidelines for FPIs of certain category.

2. Issue:

New guidelines restrict NRIs and PIOs from being fund managers or beneficial owners (BO) in India-focused overseas funds.

• A company with majority stakes owned by NRIs or PIOs will not be allowed to invest as a foreign portfolio investor (FPI) in the country.
• The existing FPIs, not in conformity with the new rules, are now required to change or close their existing position in Indian securities and provide the relevant documents.
• Any change in the position of fund manager will require an approval from all its off-shore investors.

3. Who is Beneficial owner:

• Under the PMLA,  BO is defined as “a persons who has a controlling ownership interest in the FPI or control over the FPI”.
• If a BO cannot be directly identified, the senior managing official of the FPI is assumed to be the BO.

4. Impact of new guidelines:

• As per Asset Management Roundtable of India (AMRI), a lobby group, the new FPI norms will immediately impact investments of about $75 billion from overseas funds.
• Industry experts believe that the private equity industry will see only a limited impact. Any significant impact, if possible, is expected only in public markets.
• SEBI denied of any significant impact on FPI investments.
• However, it can not be denied that new guidelines require the foreign investors to go through a serious structural overhauling.
• It also restricts NRIs/PIOs from holding key managerial position in FPIs.

5. Remedial measures:

• SEBI had formed a committee under the chairmanship of former deputy governor of RBI, H.R. Khan to review the FPI rules.
• The panel will also look into the issues raised by the investors in relation to new guidelines.

6. Way forward:

SEBI needs to take a holistic view after taking into account views of all stakeholders, including the government.

• Any attempt to weed out people behind corporate entities shall not result into filtering of money managed by NRIs or PIOs.