The Securities and Exchange Board of India (SEBI) is considering making changes to the takeover and foreign institutional investor (FII) regulations which would allow select sovereign wealth funds to invest beyond the current threshold limit of 10%.
This is being done to make the regulations in line with provisions of the Comprehensive Economic Co-operation Agreement (CECA) signed between India and other governments.
A sovereign wealth fund (SWF) is basically a state-owned vehicle that invests in financial assets such as stocks, bonds, real estate, or other financial instruments funded by a country’s foreign exchange assets.
SWFs basically invest in India through multiple investment vehicles which may differ in terms of investment objective and structure.
They are considered to be FII sub accounts and hence cannot own more than 10% stake in a listed Indian company.
The proposal for the same was put up as part of one of the agenda before the SEBI board in its recent board meet on March 25, 2011.
SEBI takeover rules would get triggered if two SWFs belonging to same country or otherwise raise their stake beyond 15%.
This goes against the CECA or free trade agreementsigned between India and Singapore to promote bilateral investments.
The CECA signed in 2005 between the two nations recognised Temasek Holdings and GIC — two investment arms of government of Singapore — as separate entities and hence they should be allowed to hold a maximum of 10% each
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