NRIs likely to get bigger play in local equities through GIFT City FPIs

The Securities and Exchange Board of India (Sebi) may allow non-resident Indians (NRIs) and Overseas Citizens of India (OCIs) greater exposure to domestic equities if their investments are sent through foreign portfolio investors (FPIs) registered at the GIFT City International Financial Services Centre (IFSC).

The proposal will be taken during Sebi’s board meeting on Saturday along with other key agenda items such as easing of voluntary delisting mechanism and introduction of a regulatory framework for real estate fractional ownership platforms, said people in the know. 

At present, the combined holdings of NRIs and OCIs in a global fund have to be less than 50 per cent, while that of a single NRI or OCI is capped at 25 per cent.

Sources said the market regulator may allow the aggregate contribution of NRI/OCIs to go beyond 50 per cent of the FPI corpus as long as the global fund is domiciled at IFSCs based out of India. The investment cap on NRIs/OCIs is to curb the possibility of Indian promoters using the FPI route to circumvent domestic regulations such as minimum public shareholding or takeover code regulations.

However, allowing greater participation via the IFSC route minimises this concern as the KYC and due diligence framework will be regulated by the International Financial Services Centres Authority (IFSCA), a domestic regulator.

Sebi had floated a discussion paper on this matter in August.

“It is felt that compared to other international regulators, IFSC shall have a better information sharing mechanism with Sebi and shall be in a better position to oversee structures having predominant NRI/ OCI ownership, with more effective monitoring of the quality of capital flows, in line with the principles prescribed under PMLA/PMLR and Foreign Exchange Management Act, 1999 (FEMA),” Sebi had said in the discussion paper.

Queries sent to Sebi did not elicit any response.

Market experts believe a more liberalised regime for NRI/OCIs could lead to twin benefits. It will boost the fund ecosystem at the IFSC as well as attract genuine flows from overseas Indians. Currently, there are only 21 FPIs registered with the IFSCA.

At Saturday’s board meeting, the market regulator may also discuss the final contours of the framework for governing fractional ownership platforms (FOPs) by mandating them to register and structure as micro, small, and medium Real Estate Investment Trusts (MSM REITs).

Sources said that Sebi might incorporate some suggestions submitted by the platforms in relation to sponsor holdings and net worth.

As these platforms do not fall under the ambit of the market regulator at present and no adequate protection, it was seen as a risk to investors along with certain possibilities of violation of other norms like that in the Companies Act. The market watchdog will also be taking up delisting regulations in the board meeting—to consider the alternatives to the reverse book-building mechanism.

Sebi would be reviewing the counter-offer mechanism, floor price, and the reference date for determining the floor price under the delisting regulations.

At present, promoters planning to delist have to provide an opportunity for the public shareholders to exit. This is done at a price discovered through the reverse book building (RBB).

Under the RBB mechanism, promoters have to acquire at least 90 per cent of total shareholding for the delisting bid to be successful. This threshold may be brought down to 75 per cent.

Ifsca mulls new framework for wealthy investors 

The International Financial Services Centre Authority (IFSCA), the regulator for GIFT City IFSC, is mulling the concept of accredited investors — wealthy individuals who can avail certain dispensations. 
 

The minimum investment threshold in certain products such as venture capital schemes, restricted schemes, and portfolio management services do not apply to such investors. As per the consultation paper floated by the regulator, the framework proposes income criteria of at least $200,000 annual gross income in the preceding financial year and similar level during the ongoing financial year as an eligibility condition for individuals.

Individuals, sole proprietorships or one person companies can be identified as accredited investors also on the basis of net assets. The net assets must be at least $1 million and at least $500,000 worth of net assets comprising financial assets. The value of primary residence is not to be included while considering net assets.

The framework further specifies joint investment criteria, norms for HUFs, partnership firms, trusts and corporate bodies.

Central banks, sovereign funds, pension funds, provident funds will be deemed to be accredited investors, said the paper.

The IFSCA has sought comments by December 7.