Sebi to vet pleas for new FPI registrations from neighbouring countries

Market players suggest that the move could be specifically aimed at vetting applicants from China wanting to register as FPIs.

The Securities and Exchange Board of India (Sebi) has asked designated depository participants (DDPs) to refer all applications for new FPI registrations coming from the neighbouring countries to the regulator for approval.

Market players suggest that the move could be specifically aimed at vetting applicants from China wanting to register as FPIs and may have been prompted by the controversy surrounding the recent increase in stake in HDFC by the People’s Bank of China (PBoC). At present, there are 16 FPI investors coming from China, of which 15 hold Category-I licence.

At present, DDPs grant licences to investors based on the criteria laid down by the regulator but do not have to take prior approvals for grant of licence.

In a letter written to DDPs on Monday, the regulator has said Sebi permission will be required for granting licences if the FPI applicant or its beneficial owner is from India’s neighbouring countries.

Such countries include the likes of China, Pakistan, Nepal, Sri Lanka, and Bangladesh.

With stock prices crashing, there have been apprehensions that Chinese companies, both private as well as public, are ramping up investments in companies across the world.

According to reports, several European countries such as Italy, Spain, and Germany have tightened FDI rules to prevent hostile takeover of their companies by Chinese entities.

Chairman Deepak Parekh, however, has clarified that PBoC has been buying stake in HDFC for the last two years and that the purchase was not for the Chinese apex bank itself.

Mauritius funds eligible for Category-I status, move could boost investment

Nearly 80 per cent of FPIs coming from Mauritius are currently classified as Category-II.

The government has specified foreign portfolio investors (FPIs) from Mauritius as eligible for taking up Category-I licence — a move that could boost investment from the region.

Nearly 80 per cent of FPIs coming from Mauritius are currently classified as Category-II.

According to experts, all these investors may be shifted to Category I on payment of the requisite fees for the license. Despite its treaty amendment with India, Mauritius remains the second-largest source of FPI money and the move could boost investment from there.

“The taxation overhang on funds investing through Mauritius is gone because no indirect transfer is applicable to Category 1. These funds will also be able to issue and subscribe to participatory notes,” said Khushboo Chopra, head of business development-India, Sanne, a global provider of alternative assets.

This year’s Budget had clarified that Category-II FPIs would be subject to indirect transfer provisions, which were earlier applicable to unregulated funds falling under Category-III.

Being part of Category-I implies lower compliance burden, simplified know-your-customer norms and documentation requirements, and fewer investment restrictions.

“This is a major development for the Mauritius International Financial Centre (IFC). It brings the element of certainty back to Mauritius jurisdiction with respect to FPI investments. As a premier IFC, we continue to play an important role in driving quality investments into the region and emerging markets, while ensuring adherence to the best practices.

This development reaffirms the position of Mauritius as a major IFC for foreign portfolio investment, as well as the confidence of investors in our jurisdiction,” said Harvesh Seegolam, governor of the Bank of Mauritius and former chief executive of FSC Mauritius.