Adani Share Price Fall: Why NSDL's Website Shows Frozen Accounts Of Three Funds
It’s a question worth several billion dollars. Are the accounts of three foreign portfolio investors, each with substantial investments in Adani Group companies, frozen or not?
The three FPIs—Albula Investment Fund, Cresta Fund and APMS Investment Fund—together own Rs 42,000 crore worth of shares in Adani Group companies. Well, now somewhat less than that.
Early Monday morning, a news report by the Economic Times said the depository accounts of these three FPIs were frozen as on or before May 31. The report cited the website of the National Securities Depository Ltd.
A quick check on the NSDL site indicates that the accounts are indeed frozen.
But late afternoon, after many of its companies’ shares had fallen hard and fast, the Adani Group issued a statement saying the report is "blatantly erroneous". It checked with the registrar and transfer agent and found that the demat accounts of the three funds were not frozen.
While the clarification helped Adani shares recover a tad, it threw the markets into further confusion: who to believe—NSDL or Adani?
Both, found BloombergQuint.
According to BloombergQuint’s conversation with executives of a depository and custodian, who preferred to remain unnamed out of business concerns, here’s what seems to have happened.
Foreign portfolio investors are required to manage separate accounts for local trading and offshore instruments like depository receipts.
While the NSDL freeze list does not classify the account as either a depository or a domestic trading account - the accounts frozen by NSDL were depository accounts.
The domestic trading accounts of these three funds continue to be active, and are not frozen.
That suggests the depository receipts accounts of the three FPIs are frozen, while the local accounts are active.
How are these accounts created?
Foreign portfolio investors are required to set up separate accounts to invest in the depository receipts of companies and to trading locally. The DR accounts are used for the purpose of fungibility of shares. That is, regulations allow conversion of depository receipts to domestic shares and vice versa, only to the extent of depository shares issued by an Indian company. The DR accounts of the three FPIs, along with other entities, were frozen a long time ago following a SEBI probe. The Adani Group companies do not have any depository receipts and were not part of the investigations.
Why were these accounts frozen?
One of the people cited above said the accounts were frozen as part of the action taken by SEBI in the 2016 GDR case where the regulator had found fraudulent activity in the GDR issues of over 50 Indian companies. Local custodians were directed to inform depositories of beneficiary accounts, which received underlying shares upon cancellation of the GDRs on SEBI’s order. Based on this information from the local custodians, depositories were to freeze the beneficiary accounts.
BloombergQuint was not able to corroborate this information as the freeze orders of beneficiary accounts are not available in the public domain. NSDL did not respond to queries seeking information regarding the date and reason for the freezing of these FPI accounts.