Sebi rejects settlement bids from foreign funds with Adani stakes

India’s securities regulator has rejected settlement applications submitted by foreign portfolio investors that held substantial stakes in listed Adani Group companies, The Economic Times reported, citing people familiar with the matter.

The Securities and Exchange Board of India (Sebi) communicated the decision to representatives of the funds last week, The Economic Times reported, adding that it had reviewed a copy of Sebi’s communication.

According to the document, the applicants’ proposed terms did not match those sought by the regulator. A recommendation to reject the applications was made by Sebi’s advisory committee on settlement orders and accepted by a panel of whole-time members.

The reported decision concerns 13 foreign portfolio investors (FPIs) identified during an inquiry that began in October 2020, when Sebi’s surveillance systems detected an unusually high concentration of investments in Adani companies.

Sebi examined whether the funds were independent public shareholders or whether their holdings could be connected to the Adani Group’s promoters. To be sure, listed Indian companies are generally required to maintain a minimum level of public shareholding.

Some of the funds were unwilling to provide information that Sebi regarded as a condition for settlement, the ET report said, citing an unidentified person.

The details have not been confirmed through a public Sebi order.

A regulatory settlement allows an entity to resolve proceedings without admitting or denying wrongdoing. Applicants generally agree to monetary payments and, in some cases, restrictions or other nonfinancial conditions.

The funds submitted several settlement applications in April 2024 after receiving show-cause notices.

The broader investigation received international attention after Hindenburg Research accused the Adani Group in January 2023 of stock manipulation and the improper use of offshore entities. The conglomerate repeatedly denied the allegations.

Sebi told India’s Supreme Court in 2023 that it had examined trading in seven Adani stocks between March 2020 and December 2022. Its inquiries covered possible price and volume manipulation as well as potential breaches of public shareholding, foreign investment and offshore derivative rules.

The regulator identified dozens of contributors to the foreign funds but encountered difficulty establishing their ultimate beneficial ownership, partly because of limited cooperation from some overseas jurisdictions.

The Supreme Court directed Sebi in January 2024 to bring its investigations to their logical conclusion in accordance with the law.