China gets the phone call it badly wanted

MUMBAI: The Securities and Exchange Board of India (Sebi) has extended People’s Bank of China’s foreign portfolio investor licence by three years, allaying concerns among other China and Hong Kong-based FPIs. People’s Bank of China (PBOC) had sent several representations to Sebi and the finance ministry seeking timely renewal of the licence that was expiring in the first week of May, said people aware of the development. According to industry estimates, the Chinese central bank holds assets to the tune of $3-3.5 billion in India, which includes equities and bonds.China-based funds have been nervous about whether the market regulator will renew their licences as the central government is taking steps toward imposing curbs on Chinese investment coming into India. Market regulator Sebi too has been hinting at greater monitoring of FPIs from China as it had sought extensive information of such funds from global custodians last month. It is also closely monitoring any changes in the beneficial ownership of FPIs that have China connections.Sense of stability for FPIsPBOC has been in the eye of the storm as its holdings in mortgage lender Housing Development Finance Corp. (HDFC) crossed 1% during the March quarter.The development was widely debated in market and policy circles since many feared that Chinese firms with ample dry powder could takeover key Indian companies that are going through a rough patch amid steep market corrections during the Covid-19 crisis.Sebi and PBOC did not respond to queries.“The renewal of licence would give a sense of stability and continuity for FPIs based out of China and Hong Kong,” said a senior official at a global custodian bank. “It also reiterates the current regulatory position that there are no restrictions on portfolio investments coming from China.”At least a dozen Chinese FPIs have licences up for renewal in the next few months. This includes sovereign funds such as the National Social Security Fund (NSSF). Also, Hong Kong is the operational hub for Asia-Pacific investments of several big-ticket FPIs just like Singapore. This had led to worries that some European and American funds could also be inadvertently impacted.ET had reported on April 21 that PBOC was concerned about the renewal of its FPI licence.“We had taken up the matter at several levels and are glad that the regulator has acted in a timely manner,” said a consultant who was directly involved in the process. “In a way, it is also positive for Indian markets in the current scenario because if the licence wasn’t renewed, PBOC would have been forced to sell its India portfolio.”As per Sebi rules, if a licence renewal application is put on hold, a fund won’t able to make fresh purchases. Further, if the renewal application is rejected, the fund will have to offload its portfolio within a timeline specified by Sebi. Last month, the central government amended the rules for foreign direct investment (FDI) to say that any investments whose beneficial owner comes from a country that shares a border with India will need pre-government approval.

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