New Delhi: The Securities and Exchange Board of India’s investigation into the allegations against Adani Group by US-based Hindenburg Research appears to have hit a roadblock as it has not been able to obtain information from overseas regulators on the ultimate beneficial ownerships of certain foreign portfolio investors (FPIs), Business Standard reported, citing people aware of the matter.
The capital markets regulator on Saturday, April 29, told the apex court that it has formed only a prima facie view on the various allegations made in the Hindenburg report. And, it would need more time to arrive at a final conclusion, the newspaper reported.
Therefore, it sought six months more to complete its probe on this matter.
SEBI wrote to Adani Group 11 times, between February 12 and April 22, seeking documents from various listed and unlisted entities. Some of these documents include minutes of audit committee meetings, reasons for availing or granting loans along with the details on tranche-wise payments, shareholding and director details and background of offshore entities, the daily reported.
Apart from FPI regulations, SEBI is investigating possible violations on related-party transaction disclosures, public shareholding norms, and insider trading, the report added.
“Establishing ultimate beneficial ownerships for FPIs is a very complex exercise. Several jurisdictions allow omnibus structures where the end beneficiaries are not required to be captured or are based in some other geographies. This entails writing to different regulators, some of whom may not be entitled to share information due to different pacts,” a person in the know of the matter told the business daily.
Sources told the newspaper that SEBI has written to various regulators in several jurisdictions over the past few weeks on the Adani matter.
“Some of the information sought includes bank statements from offshore financial institutions, background of the offshore-related entities, licences received by them and letters submitted by Adani group companies to the offshore regulators,” the report said.
“SEBI submits that the investigation would also require obtaining bank statements from multiple domestic as well as international banks. As the bank statements would also be for transactions undertaken more than 10 years ago, this would take time and be challenging. This process of seeking bank statements from the offshore banks would entail taking assistance from offshore regulators, which may be time consuming and challenging,” the markets regulator said in its submission to the apex court.
Interestingly, in July 2021, much before Hindenburg released its report, SEBI had written to the custodians of FPIs owning shares in six Adani Group firms, seeking information on their “ultimate beneficiary owners”. These funds included Albula Investment Fund, Cresta Fund, and APMS Investment Fund.
MoUs with offshore regulators
Business Standard said that SEBI has memorandums of understanding (MoUs) with offshore regulators for exchange of information. For tax-related matters, information exchange is usually done under the double taxation avoidance agreements.
“The MoUs work in most cases. However, it also depends on the extent of data sought. Not all regulators are very forthcoming with providing voluminous information. It requires multiple requests and follow-ups, which can be a cumbersome process,” a legal expert told the newspaper.
Sources told the daily that the details sought by SEBI are to reconfirm certain transactions and connections among entities.
The significance of FPI holdings in the Adani matter
After Adani Group said that ‘Vinod Adani and Adani should be seen as one’, The Wire had analysed how this statement could possibly indicate Vinod Adani’s influence on the management of the company, in terms of ownership. And, how this raises questions on the company’s free float status.
Free float refers to the shares of a company that can be publicly traded and are not restricted (i.e., held by insiders). It helps investors as it provides a more accurate representation of the stock’s true value. This is also required to mitigate manipulation and insider trading.
According to data from Trendlyne, in the case of Adani Group, a few offshore investment funds hold most of the free float. However, the ownership of these funds is unknown because Mauritius is a tax haven.
And, interestingly, several of these funds are related. For instance, at least four of these funds, namely Cresta Fund, Albula Investment, APMS Investment Fund, and LTS Investment Fund, have the same address: Edith Cavell Street, Port Louis, Mauritius, shows OpenCorporates.
Note that listed companies are required to maintain a minimum public holding (or free float) of 25%. Being listed is critical as it allows a company to raise money from the market.
However, if these rules are not met, there are implications on these companies’ public listing status.
For instance, on March 15, stock exchanges froze the promoter shareholding of Patanjali Foods after the company failed to meet the 25% public shareholding within the stipulated time period.
The Morning Context had reported that “if you remove these [offshore] funds, the effective [public] shareholding in Adani Enterprises comes down to only 10%.” In Adani Transmission, the “effective public float is about 7-8%”.