SEBI asks custodians for details of offshore beneficial owners

In a rather interesting move, Securities & Exchange Board of India (SEBI) has written to custodian banks seeking details on beneficial owners of offshore funds and foreign portfolio investors (FPIs). This essentially refers to the participatory notes (P-Notes) that trade India through registered FPIs. This has been triggered after the nasty crash in the stock prices of Adani shares after Hindenburg had published a scathing report on Adani group.

Among other allegations, Hindenburg had hinted at improper use of offshore tax havens and stock manipulation by the Adani group. These allegations have been flatly denied by the Adani group in a detailed response. However, SEBI was concerned about the impact that such sharp falls would have on investor confidence and the integrity of markets. After all, Hindenburg had openly disclosed that they had taken short positions prior to making the report public. The Adani group saw market cap depletion of over $100 billion.

In January, FPIs were net sellers to the tune of $3.54 billion as per NSDL data. In the past, many FPIs have been cagey about sharing such data, although the Indian regulator is perfectly entitled to insist on FPIs coming clean. SEBI has specifically sought details of ultimate beneficial owners in cases where senior management officials or fund managers have been listed as beneficial owners. Sharing such information is mandatory for the FPIs under extant laws.

SEBI has made it clear that in cases where the custodial banks does not provide details of beneficial ownership, the regulator would deem such foreign funds as ineligible and they would be asked to liquidate all holdings in the Indian market by March 2024. There are 11,000 SEBI-registered foreign funds in India.