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Relaxed sovereign fund rules will benefit only Singapore govt

The Singapore government, which runs sovereign funds Temasek Holdings and the Government of Singapore Investment Corporation or GIC, will be the sole beneficiary of a recent relaxation in takeover rules for sovereign funds, said a person familiar ...

, ET Bureau|
Updated: Apr 27, 2011, 06.30 AM IST
MUMBAI: The Singapore government, which runs sovereign funds Temasek Holdings and the Government of Singapore Investment Corporation or GIC, will be the sole beneficiary of a recent relaxation in takeover rules for sovereign funds, said a person familiar with the Sebi board’s decision.

Other funds from countries such as China, Oman and Malaysia will not be entitled to such benefits, said the person who did not want to be identified. Both these sovereign funds from Singapore will be allowed to acquire up to 20% stake in a listed Indian company without having to make an open offer to existing public shareholders.

Indian takeover norms mandate an entity to make an offer to buy a minimum 20% if its holding touches 15%. “Sovereign funds are not interested in control or management of the company and if they give a declaration to that effect, then they do stand at a different pedestal,” says RS Loona, former executive director of Sebi.

“It is not that they are being given an automatic exemption. There will be an occasion for Sebi to look at the transaction and then grant the exemption. To that extent the proposal is reasonably fine. Gradually, I think the takeover exemption would be granted to other countries as well in future.”

The proposal to exempt sovereign wealth funds, which was discussed at a Sebi board meeting on March 25, was in line with the terms of an economic co-operation treaty that India has signed with Singapore. The agreement lays down guidelines specifying investment limits of GIC and Temasek Holdings, and their investment vehicles in the Indian capital market. Because of resistance from Indian regulators, the Reserve Bank of India and Securities and Exchange Board of India, it had become difficult to implement the terms of the treaty.

Regulators considered these funds, owned by the same sovereign, as one and not two separate entities. “There is an obligation on the State, having undertaken an obligation at the international level, to ensure that its laws are amended or interpreted and applied in a manner which would ensure respect for and giving effect to its treaty obligations,” the ministry of external affairs had said.

While the board meeting was held last month, details of its deliberations have only recently come into the public domain when the agenda was put up on the Sebi website on April 18. Sebi has not made any formal announcement of the board’s decision. Most sovereign funds investing in the country are registered with the market regulator as foreign institutional investors.

Since no FII or FII group can hold more than 10% in a company, RBI had said that the combined investments of Temasek and GIC should not cross 10% in India’s secondlargest lender ICICI Bank, which was Temasek’s first biggest investment in the country. India has a comprehensive agreement with South Korea and Malaysia also. It may sign one with Japan and European Union in future.

But the Sebi board’s decision does not extend to these nations. Temasek Holdings, which is in India since 2004, has invested $3 billion so far and its investments include National Stock Exchange, utility GMR Energy, Bharti Infratel, Sobha Developers and Essar Energy. GIC, which is more active in the public markets, has invested in Hero Investments, Fortis Healthcare, ICICI Bank, Quippo Telecom Infrastructure, and Suzlon Energy.

Other sovereign funds that have invested in India include China’s National Social Security Fund, Abu Dhabi Investment Council, Australia's Future Fund Board of Guardians, Ireland’s National Pensions Reserve Fund, Brunei Investment Agency, New Zealand Superannuation Fund and Canada Pension Plan Investment Board among others.

Besides participating in the secondary market, SWFs invest through other routes like the foreign direct investment (or FDI) and foreign venture capital. The 50-odd SWFs registered in India has invested between $8 billion and 10 billion last year.

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