Sovereign funds can buy up to 20% stake in Indian cos: Sebi

Sovereign funds can buy up to 20% stake in Indian cos: Sebi

New Delhi: In a move that will enable foreign governments to make more investments in Indian stocks, capital market regulator Sebi has allowed them to buy to a maximum of 20% stake in any listed company without any additional obligations.

The proposed threshold of 20% is twice the current limit of 10%, beyond which sovereign wealth funds, or investment arms of foreign governments need to make an open offer for buying any additional stake.

Sebi, which will grant any such approval on case-by-case basis, has also sought changes in the relevant central government regulations about foreign investments, said a senior official.

A proposal to this effect was approved at a Sebi board meeting on 25 March and the new guidelines would be announced soon, he added.

The move, which would classify various funds of a single country as different entities and not as a single group, is primarily aimed at removing regulatory hurdles for sovereign wealth funds of the countries with whom India has signed Comprehensive Economic Co-operation Agreements (CECA).

Some of the major countries to benefit from the move include Singapore, whose two investment arms Temasek and GIC have heavily invested in Indian companies and often face problems in buying shares beyond the current limits.

The new rules would not equate sovereign funds as any other foreign institutional investors (FIIs) and give them a preferential treatment.

“Sovereign wealth funds invest in India via the foreign institutional investment route and/or through foreign direct investment/ foreign venture capital route."

“For this purpose, at times these funds use multiple investment vehicles (two to three), which may differ in terms of investment objective and structure," a Sebi board memorandum said.

“Having regard to this, one Comprehensive Economic Co-operation Agreement signed by India recognizes such investment vehicles of the Sovereign as independent of each other for the purposes of application of the Sebi rules, regulations and guidelines," it added.

Sebi has felt that the current regulations need to be changed to facilitate favourable regulatory framework for any treaty or agreement between the Government of India with foreign countries.

To enable sovereign investment vehicles under any treaty with India to invest without attracting the obligation to make an open offer, the regulator has now proposed the exemption on case-to-case basis, subject to a maximum of 20% stake and no change in control.

The decision was taken after Department of Economic Affairs, ministry of finance, told the Sebi that ministry of external affairs had concurred in opinion that the market regulator should amend the relevant rules to “ensure respect for and giving effect to its treaty obligations."

The finance ministry had also sought legal opinion from the Attorney General through the ministry of law and Justice on this matter and it favoured that “a general exemption on a case by case basis having regard to treaty provisions may be the answer."

Sebi has said that these changes would not have been required, had the new Takeover Code-- proposed in August last year-- come into effect.

The capital market regulator is considering inputs on new take over regulations from ministry of corporate affairs and Reserve Bank of India, which has suggested comprehensive changes and consequent repeal and replacement of existing regulations.

“That is why the specific proposal has been brought to take care of issues arising out of Comprehensive Economic Co-operation Agreement," the Sebi official said.

The proposed takeover regulations, among others, has suggested a higher trigger limit for open offers as against the existing 15%.