Circular on FPI investment limits issued

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The Securities and Exchange Board of India (SEBI) issued a circular clarifying the clubbing of investment limits of foreign portfolio investors (FPIs). The circular’s intent was to clarify the clubbing of investment limits of foreign governments and foreign government-related entities.

The circular stipulates that investment limits for FPIs will be clubbed only when such FPIs: (1) have a common ownership of more than 50%; or (2) if such FPIs have a common control. Additionally, it is provided that in case two or more FPIs, including foreign governments, foreign government agencies or their related entities, have the same investor or the same set of end investors holding more than a 50% of such FPIs or if they have common control, then such FPIs will form part of the same investor group and the investment limit will get clubbed.

The circular clarifies that in case the Indian government enters into an agreement or treaty with another sovereign government where it specifies certain entities to be distinct and separate from each other, then SEBI may during the validity of such agreement or treaty, recognize them as such, subject to conditions as may be specified by it. The investment by foreign governments or related entities from provinces or states of countries that follow a federal structure of government shall not be clubbed if such entities have a different ownership and control.

The circular also specifies that in case of breach of investment limits, FPIs have two options: (a) the FPI entity shall have to divest its investment within five trading days from the date of settlement of the trades to bring its shareholding below the prescribed threshold; or (b) the investments shall be treated as foreign direct investment from the date of breach.

The business law digest is compiled by Nishith Desai Associates (NDA). NDA is a research-based international law firm with offices in Mumbai, New Delhi, Bengaluru, Singapore, Silicon Valley, Munich and New York. It specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.