FPI To FDI Reclassification: SEBI, RBI Lay Down SOP - Resolut Partners

FPI To FDI Reclassification: SEBI, RBI Lay Down SOP

Authors: Hrishikesh Anand & Payaswini Upadhyay

What?

SEBI, RBI clarify the process for reclassifying FPI investments as FDI

Existing framework lacked detailed guidelines on such reclassification

As per law, an investor cannot be an FPI and FDI in the same entity. FPI investments are limited to less than 10% of a company’s equity

This doesn’t prevent an FPI from exceeding the threshold, but requires either divestment or reclassification after the purchase

How?

New framework: ‘Before intending to acquire’ shares in excess, FPI needs to get government approvals (e.g. for entry routes and sectoral limits) + go ahead from target company

After executing the trade, FPI must inform intent to reclassify to its custodian, along with above approvals. Custodian will then freeze additional purchases by the FPI in the same company

The investor or investee (as applicable) shall complete FEMA reporting. FPI will then place a request with custodian to transfer the investments to its FDI demat account

After verification, the custodian will complete the transfer, and the investment will be regulated as FDI

Bottom Line

The new framework provides a clearer, more structured process for reclassifying investments. This is relevant for FPIs looking to increase their shareholding in an entity to take a strategic, long-term outlook

Defining the moment of ‘intention to acquire’ might pose practical challenges. A simpler approach could be to use acquisition as the reference point for needing prior approvals

Click here to join the WhatsApp community of Resolüt Partners

Recent Research

The Adani Indictment: Untangling the Legal Web of Potential Violations in India
FPI To FDI Reclassification: SEBI, RBI Lay Down SOP
Part II: Deal Value Trigger and CCI Approval – How does it affect dealmaking?
Amendments To InvIT Voting Thresholds
The Adani Indictment: Untangling the Legal Web of Potential Violations in India
1 2 3 76

Leave a Comment

Your email address will not be published. Required fields are marked *

Register Now