SEBI has been monitoring investment by foreign Governments and their related entities viz. foreign central banks, sovereign wealth funds and foreign Governmental agencies registered as foreign portfolio investors (hereinafter referred to as FPIs) in India. Since various stakeholders have been seeking guidance on clubbing of investment limits to be applied to foreign Government\/its related entities, the following clarifications are issued:<\/p>\n
A. What is the investment limit for foreign Government\/foreign Government related entities registered as Foreign Portfolio Investors (FPI)?<\/strong> B. What is an investor group?<\/strong> C. How to ascertain whether an FPI is forming part of any investor group?<\/strong> Further, at para 2.2 in the Form A of First Schedule, the applicant seeking registration as FPI is required to furnish information regarding foreign investor group. Accordingly, it is the prime responsibility and obligation of the FPI to disclose the information with regard to investor group.<\/p>\n D. How is the beneficial ownership of foreign Government entities\/its related entities determined for the purpose of clubbing of investment limit?<\/strong> E. Whether two or more foreign Government related entities from the same jurisdiction will individually be permitted to acquire equity shares in an Indian company up to the prescribed limit of 10%?<\/strong> Accordingly, the combined holding of all foreign Government\/its related entities from the same jurisdiction shall be below ten percent of the total paid up capital of the company.<\/p>\n However, in cases where Government of India enters into agreements or treaties with other sovereign Governments and where such agreements or treaties specifically recognize certain entities to be distinct and separate, SEBI may, during the validity of such agreements or treaties, recognize them as such, subject to conditions as may be specified by it. [Ref. Regulation 21(9) of FPI Regulations].<\/p>\n F. How will the investment by a Foreign Government Agency be treated?<\/strong> The investment by foreign Government agencies shall be clubbed with the investment by the foreign Government\/its related entities for the purpose of calculation of 10% limit for FPI investments in a single company, if they form part of an investor group.<\/p>\n G. Whether any investment by World bank group entity IBRD, IDA, MIGA and IFC should be clubbed with the investment from a foreign Government having ownership in such World bank group entity?<\/strong> H. Where Provinces\/States of some countries with federal structure have set up their separate investment funds with distinct beneficial ownership constituted with objectives suitable for their respective provinces, such funds not only have separate source of financing but also have no management, administrative or statutory commonality. Kindly inform whether investments by these foreign Government entities shall be clubbed?<\/strong>
\nReply:<\/strong> The purchase of equity shares of each company by a single FPI or an investor group shall be below ten percent of the total paid up capital of the company. [Ref. Regulation 21(7) of FPI Regulations].<\/p>\n
\nReply:<\/strong> In case, same set of beneficial owners are constituents of two or more FPIs and such investor(s) have a common beneficial ownership of more than 50% in those FPIs, all such FPIs will be treated as forming part of an investor group and the investment limits of all such entities shall be clubbed at the investment limit as applicable to a single foreign portfolio investor. [Ref. Regulation 23(3) of FPI Regulations and FAQ 58].<\/p>\n
\nReply:<\/strong> The designated depository participant engaged by an applicant seeking registration as FPI shall ascertain at the time of granting registration and whenever applicable, whether the applicant forms part of any investor group. [Ref. Regulation 32(2)(a) of FPI Regulations].<\/p>\n
\nReply:<\/strong> The beneficial owner (BO) of foreign Government entities\/its related entities shall be determined in accordance with Rule 9 of Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (hereinafter referred to as PMLA Rules). The said PMLA Rules provide for identification of BO on the basis of two methodologies, namely (a) controlling ownership interest (also termed as ownership or entitlement) and (b) control in respect of entities having company or trust structure. In respect of partnership firms and unincorporated associations, ownership or entitlement is basis for identification of BO.<\/p>\n
\nReply:<\/strong> In case the same set of beneficial owner(s) invest through multiple entities, such entities shall be treated as part of same investor group and the investment limits of all such entities shall be clubbed as applicable to a single FPI. [Ref. Regulation 23(3) of FPI Regulations].<\/p>\n
\nReply:<\/strong> Foreign Government Agency is an arm\/department\/body corporate of Government or is set up by a statute or is majority (i.e. 50% or more) owned by the Government of a foreign country and has been included under \u201cCategory I Foreign portfolio investors\u201d. [Ref. Regulation 5(a) of FPI Regulations].<\/p>\n
\nReply:<\/strong> Government of India, vide letter No. 10\/06\/2010-ECB dated January 06, 2016 has exempted World Bank Group viz. IBRD, IDA, MIGA and IFC from clubbing of the investment limits for the purpose of application of 10% limit for FPI investments in a single company.<\/p>\n
\nReply:<\/strong> The investment by foreign Government\/its related entities from provinces\/ states of countries with federal structure shall not be clubbed if the said foreign entities have different BO identified in accordance with PMLA Rules.<\/p>\n