Sebi may ease FPI norms, compliance rules for firms facing bankruptcy

Sebi may ease FPI norms, compliance rules for firms facing bankruptcy

At least 400 companies are undergoing resolution under insolvency and bankruptcy code, FPIs account for 18% of India’s market capitalization

The Securities and Exchange Board of India (Sebi) board is likely to further ease norms for foreign portfolio investors (FPIs) and come out with easier compliance rules for companies undergoing bankruptcy, said two people with direct knowledge. The board is scheduled to meet on 28 December

The board will expand the list of eligible jurisdictions to grant registration to FPIs, rationalize “fit and proper” criteria and simplify regulatory requirements, these people said.

The move is aimed at easing direct registration for FPIs and avoiding so-called participatory notes (P-notes), said one of the people cited earlier. On 28 June, the regulator had issued a discussion paper to ease FPI entry.

FPIs had holdings worth Rs 418.81 billion in Indian stocks at the end of 30th September. That accounted for 18% of India’s $2.3 trillion market capitalization.

The regulator also plans to ease the so-called broad-based criteria for category-II FPIs to include sovereign wealth funds, insurance/reinsurance companies, pension funds and exchange-traded funds (ETFs) as their underlying investors, said one of the two people cited earlier.

As per Sebi norms, a Category II fund should have at least 20 investors to qualify as broad-based; a pre-requisite for grant of a licence is that such overseas investors should have a bank as an underlying investor. Category II FPIs include banks, asset management companies and investment managers.An email sent to Sebi was not answered immediately.

“The proposed changes will help in facilitating more FPI set-ups and as a result, further cut down the already diminishing P-note issuance. Second, it will ease out certain practical difficulties which FPIs face on a day-to-day basis,” said Tejesh Chitlangi, a partner at law firm IC Universal Legal.

In addition, the Sebi board will also finalize compliance norms for insolvent companies based on recommendations of a committee comprising members from Sebi and the Insolvency and Bankruptcy Board of India (IBBI). This has mainly to do with listing regulations.

For instance, “the minimum public shareholding requirement (MPS) of 25% would be eased or removed for these insolvent listed companies. During the restructuring or resolution process, it’s possible that their public float would go below the required 25%,” said the second of the two people cited earlier.

“The IRP (insolvency resolution professional) of these companies will receive alerts and assistance from exchanges to adhere to LODR (listing obligation and disclosure requirements),” said the second person.

This is the second time this year that the market regulator is considering changes in regulations to ease the resolution of stressed assets in banks’ balance sheets

On 21 June, the Sebi board had exempted buyers of shares in distressed firms from the requirement of making an open offer even if the purchase triggers such an event under the takeover code.At least 400 companies are undergoing resolution under the insolvency and bankruptcy code.

The Mint, New Delhi, 20th December 2017