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SEBI analysing data from custodians especially from China, Hong Kong


Date: 20-04-2020
Subject: SEBI analysing data from custodians especially from China, Hong Kong
The Securities and Exchange Board of India (SEBI) has sought data from custodians for analysing purposes. Meanwhile, foreign portfolio investor investment is already capped at 9.99 percent - which is safe in nature.

A source close to the development told Moneycontrol, "We are just analysing data of investment especially from China, Hong Kong whether they have invested highly during the downfall - which is not in the alarming stage in listed companies as of now."

A second source also confirmed with Moneycontrol, "Seeking details from custodians is a routine process for surveillance, where they feel ultimate beneficiaries are not not clearly known. In the FPI regime. There are clear instructions that FPI can only get 9.99 percent of stake where there is no fear of takeover in distress conditions. Earlier, also, we sought data of European Union or Mauritius based trade."

 
Who is a custodian?
A custodian is a financial institution that holds customers' securities for safekeeping in order to minimise the risk of their theft or loss. A custodian holds securities and other assets in electronic or physical form. Since they are responsible for the safety of assets and securities that may be worth hundreds of millions or even billions of dollars, custodians generally tend to be large and reputable firms. A custodian is sometimes referred to as a ‘custodian bank’. Basically, a custodian takes responsibility for FPI trade and settles their trade.

"China is an FATF-cleared country and in this category, and they do not come under any grey or black category. SEBI will not make any separate regulations for Chinese investment until the government of India takes any adverse stand for Chinese investment. SEBI and the government clearly made rules of FPI investment which permits Chinese to invest in listed space, "said Tejas Chitlangi, a lawyer who deals with FPI registration.

A third source close to the market told Moneycontrol. " SEBI may use delay tactics for new FPI registration but not take any adverse action on investment of China and Hong Kong currently as regulations permit them to take a stake in stocks. SEBI may ask FPI who is buying whether they are buying for long term or short term. The surveillance department of SEBI may keep a watch for this type of investment.”

A fourth source from broking told Moneycontrol, "There is no significant investment by companies from China and Hong Kong during the downfall in the market in March. Chinese investments do not come only through China or Hong Kong, they use the Singapore and the Mauritius routes as well for their investments. Even identifying ultimate beneficiaries in this case is also difficult. On the other side, the government relaxed the Mauritius route and allowed investment in FPI Category 1. Alibaba’s investment in Paytm was by Alibaba Singapore Holdings pvt. Limited. These do not get recorded in India’s government data as Chinese investments".

However, SEBI is analysing the data of another eleven countries including Mongolia, Pakistan, Bhutan, Nepal, Afghanistan, Bangladesh, Myanmar, Taiwan, North Korea, Yemen and Iran to find out if the Chinese investment used this route and took significant stake in the company.

Another source who works in a Chinese broking firm in India told Moneycontrol, "Chinese investment is high in technology firms, as well as in the infrastructure and pharma space, and mainly in the un-listed space. India's trade with China is the second largest worth of $87 billion in 2018-19, which is aimed to increase to $100 billion. In this, $70 billion is for import and $16.4 billion for export from India. FPI restrictions on Chinese investment may trigger only from the Ministry of Finance, Ministry of External Affairs and Ministry of Home Affairs - which is unlikely for existing investment since good diplomatic relations of both the countries.”

Unlisted investment does not come under the investigation part of SEBI which is dealt by the Reserve Bank of India (RBI) with consultation with the Ministry of Finance.

As per Gateway House, the think-tank said in their report, "China’s economic footprint in India seems negligible compared to its presence in other emerging markets, especially in South Asian countries such as Pakistan, Sri Lanka, Myanmar and Bangladesh. Whereas investments in these countries are mostly in physical infrastructure, the Chinese funding to Indian tech start-ups is making an impact disproportionate to its value, given the deepening penetration of technology across sectors in India. TikTok, owned by ByteDance, is already one of the most popular apps in India, overtaking YouTube; Xiaomi handsets are bigger than Samsung smartphones; Huawei routers are widely used.”


It further said, "Over the course of one year, Gateway House has conducted a deep study of Chinese investments in India as part of a larger research project on Chinese investments in India’s neighbourhood. The findings are remarkable: 18 of the 30 Indian unicorns have a Chinese investor. This means that China is embedded in Indian society, the economy, and the technology ecosystem that influences it.”

“Unlike a port or a railway line, these are invisible assets in small sizes – rarely over $100 million – and made by the private sector, which doesn’t cause immediate alarm. All this adds up to just 1.5 percent of the total official Chinese (including Hong Kong) FDI into India. This doesn’t cover investments made by funds based out of Singapore and elsewhere, where the ultimate owner is Chinese, so the actual investment in India will be higher,” it added.

A source close to the development told Moneycontrol, "India and China are part of BRICS bank. If India promptly restricts investments from any of these countries, it will raise concern of sustainability of this bank where they have heavily invested in these countries".

Earlier also, we have seen India's approach towards China which is not similar to other countries in the past as well, especially in the Huawei case. In this case, most countries took a stand against Hauwei but India did not take any adverse view on this country.

India's Prime Minister Narendra Modi and Chinese president Xi Jinping have great chemistry as of now. After the visit of Xi Jinping, the Public Bank of China (PBOC) has opened its first branch in India and two other largest broking firms opened offices in Mumbai.

Currently, we are importing around 70 percent of the API of HCQ from China which we are exporting to other countries. The Indian government is in touch with China for test kits of coronavirus for a large number of orders. A source close to development told Moneycontrol that, “At this point of time when we are more dependent on Chinese imports, it looks difficult to ban any of Chinese investment through FPI or FDI".

A source in the market told Moneycontrol, " Despite that, we gave a clear signal by closing the automatic Foreign Direct Investment route from China that we do not want unrestricted money flow to India."

Another market broker told Moneycontrol, " Mostly, countries like Australia or Italy are taking stands against the Chinese investment. There, there is a fear of takeover of companies, which is not the case in India as of now. Especially in the listed space, if owners have 26 percent holding, none of the investors can take over. In our country, the investment of FPI is limited to 9.99 percent."

Source::- moneycontrol.com

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