Sebi plans to allow investment up to this level if India has a CECA with the country in question.
The Securities and Exchange Board of India (Sebi) is looking at amending the norms for SWFs. However, this will be subject to a condition that the stake increase does not lead to a change in control.
At present, an entity which buys over 15 per cent in a listed company has to make an open offer for another 20 per cent. Sebi plans to amend the takeover and foreign institutional investor (FII) regulations so that India’s Comprehensive Economic Cooperation Agreements (CECAs) with other governments can be implemented.
The new rules would apply to SWFs from countries with whom India had signed CECAs, Sebi said in the agenda note for its board meeting next Monday. Sebi will consider the exemption on a case-by-case basis.
India has CECAs with Singapore and South Korea. Its agreement with Malaysia is set to get operational by July. It is negotiating with the EU, Australia, New Zealand, Canada, Indonesia and Israel. The CECA with Japan has been delayed due to the earthquake there.
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The new norms will immediately benefit Singapore’s SWFs – Government of Singapore Investment Corporation (GIC) and Temasek Holdings – and Malaysia’s Khazanah. “Though the open offer norm has not been a hindrance so far, we may take a re-look at our portfolio if it is amended. It will certainly be helpful and potentially see more investments from SWFs,” said Michael Fernandes, executive director (investment), Khazana.
Khazanah Nasional Berhad’s investments include Parkway Holdings, Infrastructure Development Finance Corporation, YES Bank and Apollo Hospitals Enterprise.
GIC Special Investments has invested in GVK Energy, Quippo Telecom Infrastructure, Suzlon Energy, Fortis Healthcare, India Hero Investments and ICICI Bank. Tamesek has a stake in GMR Power, ICICI Bank and Bharti’s tower arm.
SWFs invest in India via the foreign institutional investor route and/or through the foreign direct investment/foreign venture capital route. For this, at times they use multiple investment vehicles (two to three), which may differ in terms of structure and investment objectives. The CECAs recognise these as independent of each other for application of Sebi rules.
According to the Sebi note, this raised an issue whether investment vehicles covered under any treaty or agreement concluded with the government of India should be allowed to hold 10 per cent in each under the FII regulations and, consequently, allowed to hold beyond the threshold limits specified under the takeover regulations.
“While Sebi is giving a special status to SWFs of countries with which India has a CECA, philosophically, it should apply the same rules for all passive investors, including domestic mutual funds,” said Sandeep Parekh, founder, Finsec Law Advisors, and a former Sebi executive director (legal).
The external affairs ministry had said that there was an obligation on the state to ensure its laws were amended or interpreted and applied in a manner giving effect to its treaty obligations, said Sebi’s note.
The attorney general of India was of the view that Sebi would be entitled to grant specific exemptions from treaty obligations, but the reasons would have to be recorded, said the regulator.