Small foreign stakes in listed cos face banks' regulatory barriers

Mumbai: Foreign investors readying to trial the waters by buying tiny stakes done off-market deals successful listed Indian companies are hitting a partition with banks throwing the regularisation publication astatine them.

At slightest fractional a twelve ample backstage and MNC banks, pursuing a rigid mentation of the law, person told specified offshore investors that they tin clasp little than 10% successful listed companies lone aft registering themselves arsenic overseas portfolio investors (FPI) with the Securities & Exchange Board of India (Sebi).

Banks taking specified a stance person blocked a fewer inbound investments adjacent though the projected stock purchases were not connected the banal exchange, but planned arsenic secondary off-market trades and preferential allotment.

This stems from the knowing that overseas holdings supra 10% would beryllium categorised arsenic 'FDI' portion equity interests of little than 10% would beryllium treated arsenic 'foreign portfolio investment'.

"This contented has been coming up successful aggregate deals precocious astatine the clip of investment. FDI and FPI are 2 abstracted concern routes. Quantum of investment, successful my view, should not unit an capitalist to alteration the class of concern arsenic that would not beryllium supported by the existent operation and commercialized objective," said Moin Ladha, spouse astatine the instrumentality steadfast Khaitan & Co.

Hesitant to perpetrate ample stakes, galore (non-FPI) investors similar single-digit holdings successful listed entities.

In this context, respective banks clasp the presumption that investments classified arsenic overseas portfolio investments could beryllium lone made by Sebi recognised FPIs. Since banks are the authorised overseas speech dealers liable for processing the inflows, their disapproval would either stall a transaction oregon thrust the capitalist to find a slope with a much realistic mentation of the regulations.

Agencies

Banks comfy with little than 10% investments by non-FPI overseas investors judge that portion specified an concern should beryllium classified arsenic overseas portfolio investment, it's not indispensable that the capitalist indispensable beryllium an FPI. So, immoderate overseas investor-irrespective of whether it has an FPI licence oregon not-can bargain the shares. These banks deliberation that the FDI-related paperwork, similar filing of 'foreign currency gross provisional return' (FC-GPR), volition not beryllium indispensable for specified portfolio investments.

The Foreign Exchange Management (Non-debt Instruments, oregon NDI)) Rules authorities that concern of 10% oregon much successful a listed institution would beryllium treated arsenic FDI. "Conversely, an concern of little than 10% by immoderate idiosyncratic nonmigratory extracurricular India is treated arsenic overseas portfolio concern nether Rule 2(t). It whitethorn beryllium noted that this is overseas portfolio concern and is applicable for immoderate idiosyncratic nonmigratory extracurricular India. It is antithetic from a 'Foreign Portfolio Investor' which is registered with Sebi," said Anup P. Shah of PPS & Co, a taxation and ineligible advisory firm.

"It is imaginable to instrumentality the presumption that a overseas idiosyncratic should beryllium allowed to put little than 10% successful a listed institution adjacent if helium is not a Sebi-registered FPI. However, this is an contented connected which determination is nary explicit clarity, starring to divers interpretations," said Shah.

Less than 10% investment, said Ladha, tin beryllium undertaken nether Schedule I of the NDI rules. "The archetypal intent of the rules is to easiness reporting and not curtail concern beneath 10% nether Schedule I," helium said.

The developments instrumentality spot astatine a constituent erstwhile Sebi has broached the thought of allowing foreigners to straight bargain listed stocks-the mode NRIs can, albeit taxable to a cap.

The FDI-FPI norms are often shaped by the respective turfs of RBI (dealing with FDI) and Sebi (formulating rules connected FPIs). Their inability to span the gaps person made the rules little flexible. For instance, an FPI indispensable clasp little than 10% successful a listed company; but if it buys much shares and the holding crosses 10% to reach, accidental 12%, the full 12% is considered arsenic FDI. And, adjacent aft the FPI sells the further shares and brings the involvement beneath 10%, it is inactive considered arsenic FDI.