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Six-member expert committee – constituted by the Supreme Court Hindenburg-Adani allegations case and headed by former Supreme Court judge, Justice AM Sapre – said the Securities Exchange Board of India (SEBI) has “drawn a blank” and is in a “chicken-and-egg situation” in its probe into “ownership”. 13 foreign entities including 12 foreign portfolio investors (FPIs).
The 178-page report said, “SEBI has found 42 contributions in assets under management of 13 foreign entities. Various avenues have been adopted in seven jurisdictions where the contributors are located, including ED, CBDT and various market regulators. SEBI has A vacancy has been drawn”.
opaque structures
The foundation of SEBI’s suspicion that it probed the ownership of foreign entities is that they have “opaque structures”, as the chain of ownership of the 13 entities was not clear.
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The committee noted that SEBI was probing the ownership of 13 entities since October 2020 with regard to the allegations of minimum public shareholding in the Hindenburg Report.
“The crucial issue is whether, as per law, one can conclude that there are FPI fronts for the promoters of the Adani Group… If the investigation leads to such a finding, it would mean that the promoters would not be required to have minimum public shareholding be in line with,” the report stated.
not regulatory failure
While it stressed the need for a “coherent enforcement policy”, the committee concluded that it would not be possible to reverse a finding of “regulatory failure” to comply with conditions governing minimum public shareholding.
The Justice Sapre committee noted that the problem faced by the market regulator was due to a change in Sebi’s legislative policy under the FPI Regulations 2014 based on the recommendation of a working group in 2018. Declare only your “beneficial owner” and not the “last natural person above each person having an economic interest in the FPI”, in line with the Anti-Money Laundering Act.
tracking economic owners
“In 2018, the provision requiring FPIs to deal with the ‘opaque structure’ and be able to disclose each ultimate natural person at the end of the chain of each owner of economic interest in the FPI was removed,” the report said. Was.” ,
It added that for SEBI to clear its doubts, its probe would need information on the “ultimate economic ownership” of the 13 foreign entities – and not just the “beneficial owners”.
The committee said it was this “dichotomy” between the post-2018 law on the one hand and what SEBI wants on the other, that has led the market regulator to a vacuum despite its best efforts.
“The securities markets regulator suspects wrongdoing but also finds non-compliance of various conditions in the relevant regulations. Therefore, the records reveal a chicken-and-egg situation,” the committee said.
no abusive business patterns
On the issue of price gouging, the report said In case of Adani shares849 alerts were generated by the trading system.
These warnings were considered by the stock exchanges in four reports sent to SEBI. Two of these were reported long ago Hindenburg Report and two were after January 24, 2023.
However, no pattern of “artificial trade or wash trade” was found. “In short, no consistent pattern of abusive trade has emerged,” the report informed the court. Here too, the committee said it would not be possible to conclude that there was any regulatory failure on the part of SEBI, as the regulator had an “active and functioning monitoring framework to take note of high price and volume movements”.
stock volatility
The report agreed that “there was certainly high volatility in Adani shares following the publication of the Hindenburg Report”.
“Market expectations and confidence in the Adani Group were shaken by the allegations made in the Hindenburg Report, which was speculative. Although the report was based on publicly available information, it called into question the very fundamental grounds on which the market had priced Adani shares,” the committee report said.
It was noted that the Adani Group’s deleveraging measures – such as reducing debt secured by encumbrances on its shareholding, and infusing new funds into Adani’s shares through an investment of around $2 billion by a private equity investor – have trust is built. in shares.
It said, “The market had reassessed and revalued Adani shares…they are stable at the new revaluation level.”
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