Chinese central bank checks on licence renewal

Mumbai: The People’s Bank of China (PBOC) is planning to check with the finance ministry about the fate of its foreign portfolio investor (FPI) licence, which is set to expire in the first week of May, said people aware of the development. The Chinese central bank is unsure about timely renewal, prompting its officials to initiate talks, said the people cited. PBOC’s representatives could meet government officials to convey the central bank’s interest in extending the licence, they said.

To be sure, there are no restrictions on Chinese funds investing in Indian markets through portfolio route. However, custodian banks are hesitant to go ahead with renewal without a nod from the finance ministry and Sebi. PBOC didn’t respond to queries.

New rules on foreign direct investment (FDI) by entities in countries adjoining India, including China, require screening of such transactions. Besides, the market regulator has stepped up scrutiny and has asked for granular beneficial ownership details of any funds with China or Hong Kong connections.



No Curbs on Renewals

Sebi has told custodians that its approval is mandatory for issuing any fresh FPI licences. However, there are no official curbs on existing FPIs and renewal of their licences as of now.

“The FPI licence of PBOC is expiring on May 3 and the renewal needs to happen without any time lag since PBOC is actively looking at buying opportunities in India,” said a top executive at one of the Big Four consultancies. “Normally, custodian banks handle the formalities. However, in the current scenario, custodians are reluctant to go ahead with the process without getting comfort from Sebi.”

PBOC is in the midst of a storm after its shareholding in mortgage financier Housing Development Finance Corp. (HDFC) crossed the 1% threshold in the March quarter. While PBOC has acquired the stake over a long period of time, some market participants saw it as an attempt by Chinese funds to take advantage of falling share prices to acquire holdings in critical assets. PBOC is estimated to have investments worth $3-3.5 billion in the Indian market, including stocks and bonds.

It’s in the process of drafting a request to the Department of Economic Affairs (DEA) in the finance ministry, seeking its intervention in the matter, said a lawyer with knowledge of the development. “Given the controversial circumstances, we would need some comfort from the government or Sebi regarding renewal of PBOC’s licence,” said a senior executive at a global custodian bank. “The stance taken by the regulators in the matter is crucial since at least four more sovereign funds from China and Hong Kong region will have to get their licence renewed in the next few months.”

The Beijing-based bank will not be able to make any fresh purchases in the Indian market if its renewal application is put on hold. If the application is rejected, it will be forced to sell all existing investments in a time frame to be specified by Sebi.

According to the custodian cited above, another Chinese sovereign fund-—the National Social Security Fund (NSSF)--will have to renew its licence by August. Also, Hong Kong-based East Asia Bank’s licence will expire in the second half of 2020.

Market participants told ET there’s no need for curbs on Chinese investors using the FPI route since they will not be able to buy more than 10% in a listed company. Also, FPIs typically are silent investors since they don’t get board representation or a say in management.