MNC custodian banks have been warned by the RBI on the day of IPO that they must follow a 2019 policy. According to the policy foreign investor cannot own the shares as both a foreign direct investor (FDI) and a foreign portfolio investor (FPI) in the same firm. ON TUESDAY, the RBI message came in response to a request for clarification from custodian banks such as HSBC, JP Morgan, Citi, and Deutsche, who hold shares on behalf of overseas investors.
An overseas investor uses the FDI method when buying stocks in an unregistered Indian company. On the other hand, an FPI license from Sebi is required for subscribing to an IPO or buying shares in a listed company on the secondary market. Putting to the test of October 2019 ‘non-debt restrictions’ to Zomato’s IPO has complicated the issue. Previously, a single entity could travel both ways.
Most FDI investors in Zomato wanted to take part in the IPO to avoid having their interests diluted after the IPO. Their absence, on the other hand, would increase the possibilities of other foreign investors (i.e. FPIs) getting a piece of the pie.
“Technically, an FDI investor in Zomato can take an FPI registration and apply for the IPO. But practically, it’s difficult as registration formalities with Sebi take about a month,”
One of the FDI fund investors in Zomato has used another existing FPI vehicle to come in as an anchor to the IPO. But it’s not the same as the underlying group of investors in the two vehicles (FDI and FPI) may be entirely different,” a senior banker said.
In this case, investors who contributed to the FDI pool may not profit from any possible benefits from the IPO. This is subscribed to or anchored by the FPI business, which has most likely received funds from a separate collection of investors with a different investing philosophy. Even though both vehicles are managed by the same worldwide organization.
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