Informal Guidance No. SEBI/HO/AFD/ P/OW/2023/3703/1, … Continue reading “SEBI allows clubbing of entities for FPIs with 50%+ common ownership/control”
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Informal Guidance No. SEBI/HO/AFD/ P/OW/2023/3703/1, dated: 30.01.2023
The SEBI, in its reply to an informal Guidance, has stated that there is no express bar in FPI regulations that prevents FPIs from being part of multiple investor groups, up to the specified limit of investment. Further, FPIs of entities having common ownership of more than 50% or common control can be clubbed together.
Query raised by the Applicant Company
The Applicant Company sought an informal guidance with regard to questions that arose while clubbing Foreign Portfolio Investors (FPIs) under investor groups where the financial interest was owned by one person or group of persons, and control was held by another person or group of persons.
The applicant company sought informal guidance on the following queries:
(a) Whether one FPI can be a part of two investor groups
(b) Whether FPIs that have neither common ownership nor common control with the entities should be considered part of the same “Investor Group” in order to club two or more FPIs
Main Concern of the Applicant Company
The Company stated that three out of the nine FPIs have neither common ownership nor common control with any of the other FPIs. Accordingly, the applicant company sought to know whether FPIs without common ownership or common control can be clubbed together.
Provisions specified in FPI regulations
As per Regulation 22(3) of the SEBI (Foreign Portfolio Investors) Regulations, 2019, multiple entities registered as foreign portfolio investors and directly or indirectly, having common ownership of more than 50% or common control, shall be treated as part of the same investor group and the investment limits of all such entities shall be clubbed at the investment limit as applicable to a single foreign portfolio investor.
Further, as per Regulation 20(7) of the SEBI (Foreign Portfolio Investors) Regulations, 2019, the purchase of equity shares of each company by a single foreign portfolio investor including its investor group shall be below 10% of the total paid-up equity capital on a fully diluted basis of the company.
The SEBI’s observations
SEBI was of the view as per the SEBI (Foreign Portfolio Investors) Regulation, 2019, that FPI regulations can’t bar the FPIs to be part of multiple investor groups up to the specified limit of investment.
SEBI further observed that if the FPIs doesn’t have common ownership of more than 50% or common control, can’t be clubbed together.
SEBI reply –
In response to the query, the SEBI clarified that there is no express bar in the FPI Regulations upon the FPIs to be part of multiple investor groups provided the investment limits specified in the FPI Regulations are not breached. Therefore, one FPI can be a part of two investor groups.
SEBI, further clarified that in order to club together two or more FPIs, the requirement of FPIs having, either directly or indirectly, common ownership of more than 50% or common control needs to be satisfied.
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