Trust but verify

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Though the liberalisation of FIIs norms in May this year by Sebi was long overdue, granting sovereign wealth funds (SWFs) more freedom to register themselves as foreign portfolio investors has come with riders. In August, A high-level official panel on financial markets has asked RBI and Sebi to scrutinise data of SWF investments through FDI and FII routes and share it with the government. The panel has also decided to close the gap in data collection relating to indirect investments by SWFs through the FII/sub-account routes.

Some top global SWFs have been operating in India before May’s regulatory amendments, and they include Abu Dhabi Investment Authority (ADIA) — the biggest SWF in the world — Kuwait Investment Authority, and Singapore Investment Corporation and Tamasek, also from Singapore. Since May, a slew of SWFs, including China Investment Corporation (CIC) and Saudi Arabia’s fund, has sought Sebi approval to register and invest in the Indian stock market. They could significantly ratchet up the markets which have witnessed a dramatic outflow of foreign portfolio investment since the beginning of the year.

Across nations, official responses mirror concerns about investment practices of SWFs. In March, the Treasury Department reached agreements with the Abu Dhabi emirate and Singapore governments on a set of policy principles that would guide investment in the US. European Commission president Jose Manuel Barroso fumed in February that the EU could not allow non-European funds to be “run in an opaque manner or used as an implement of geopolitical strategy”. A month before, at the World Economic Forum in Davos, influential speakers like Larry Summers fretted that foreign governments should agree to a code of conduct and be more transparent.

Nevertheless, these concerns seem far cry from the angst that went before in the West.

In 2005, Chinese National Offshore Oil Corp’s aborted takeover bid of Unocal ran into stiff resistance in US Congress and media where the Chinese offer was painted as a threat to America’s market economy. In the following year, Dubai Ports was prevented from taking control of the management of six American ports on the grounds of national security. The edifying lesson: in a huge takeover game, there’s a great deal of not only economic but also political due diligence need to be done before anything is even attempted in sensitive markets.