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The government recently permitted certain Indian companies to directly list on select foreign stock exchanges, which will allow these companies to access global capital and boost capital outflows.
In a notification issued earlier this week, the Ministry of Corporate Affairs (MCA) said the provision, which was announced in the Companies (Amendment) Bill, 2020, came into effect on October 30.
In July, Finance Minister Nirmala Sitharaman had announced that the government had decided to enable listed and unlisted domestic companies to directly list their equity shares on the International Financial Services Centre (IFSC), Ahmedabad.
In its October 30 notification, the Ministry said: “In exercise of the powers conferred by sub-section (2) of section 1 of the Companies (Amendment) Act, 2020 (29 of 2020), the Central Government hereby appoints the 30th day of October 2023 as the date on which the provisions of section 5 of the said Act shall come into force.”
The amendment empowered the central government to allow certain classes of public companies to list prescribed classes of securities in foreign jurisdictions. This essentially means certain classes of domestic public companies can be listed on prescribed foreign stock exchanges, including GIFT IFSC, Ahmedabad.
ADR, GDR issues by Indian companies |
|||
| YEAR | NO. | AMOUNT (USD mn) |
AMOUNT (Rs.crore) |
| 2008 | 16 | 489.76 | 1,982.17 |
| 2009 | 25 | 3,720.33 | 17,851.82 |
| 2010 | 38 | 1,174.03 | 5,366.23 |
| 2011 | 19 | 553.50 | 2,531.71 |
| 2012 | 4 | 161.88 | 899.08 |
| 2013 | 2 | 40.00 | 219.39 |
| 2014 | 1 | 45.22 | 285.16 |
| 2015 | 2 | 1,595.72 | 9,872.01 |
| 2016 | 1 | 59.94 | 399.25 |
| 2017 | – | – | – |
| 2018 | 1 | 1,820.00 | 12,440.90 |
| 2019 | – | – | – |
| 2020 | – | – | – |
| 2021 | – | – | – |
| 2022 | – | – | – |
| 2023 (Till Oct,23) |
– | – | – |
| Source: Prime Database | |||
Section 5 also allows the government to exempt such listing from certain procedural requirements (such as prospectus, share capital, beneficial ownership requirements, failure to distribute dividend), according to Manendra Singh, Partner, Economic Laws Practice.
Domestic listed companies would use depository receipts — American Depository Receipts (ADR) or Global Depository Receipts (GDR) — to list in the overseas market. Under this route, Indian companies wanting to get listed on foreign stock exchanges would give their shares to an Indian custodian, and depository receipts would be issued to foreign investors.
According to Prime Database, between 2008 and 2018, 109 companies raised Rs 51,847.72 crore through the ADRs/GDRs route. After 2018, none of the companies got listed overseas.
With the new provision, domestic companies can tap foreign markets to raise funds. It will offer them better valuation and exposure to trade in foreign currency such as the dollar, Singh said. It may also benefit the startup and unicorn community as another avenue to raise funds and increase their profile globally. It will also add to India’s foreign exchange kitty.
“This allows Indian companies another medium of raising capital. It would also need them to meet governance norms at such specified jurisdictions. Over the years, the requirements of SEBI and the Indian stock exchanges have surpassed these concerns and this would no more be an issue,” Yash Ashar, Partner & Head, Capital Markets, Cyril Amarchand Mangaldas, said.
Even on the accounting front, the Indian Accounting Standards (IndAS) are now aligned largely to globally accepted accounting norms, and that would also help Indian companies and avoid the time-consuming and costly preparations of accounts in the US Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), he said.
According to Ashar, the likely challenge will be that relating to investors.
“Will global investors provide the same valuations as that in India? What would be the commercial benefits of these listings? These are the more important and relevant questions that Indian companies and their Boards would have to grapple with over the coming months and year,” he said.
Experts said this week’s MCA announcement is a first step for direct listing on foreign jurisdictions but more details, especially where and how they will be listed, are required.
“In terms of clarity, what is needed immediately is to understand (a) which classes of public companies can use this route, (b) what are the classes of securities (such as equity, preference, etc) which can be listed, (c) which are the foreign jurisdictions and permitted stock exchanges where such companies can list, (d) what are the exemptions offered to such companies in terms of procedural compliances,” Singh said.
It will need to be seen if the government notifies GIFT City as one of those jurisdictions, he said.
