By Punit Shah & Vishal Lohia
During the later half of 2023, finance minister Nirmala Sitharaman had mentioned that India was looking to reconsider the proposal of allowing domestic firms to list on foreign stock exchanges directly. She also indicated that the government was considering the option of listing, starting with GIFT International Financial Services Centre (GIFT IFSC) in Gandhinagar, Gujarat.
In line with this, the government made changes to the Companies Act (on October 30, 2023) and to the relevant company law rules (on January 24), laying down the framework for entities eligible to directly list on international stock exchanges. Simultaneously, changes were made to the Indian exchange control laws (on January 24). The international stock exchanges at GIFT IFSC under the regulatory supervision of the International Financial Services Centres Authority — India International Exchange and NSE International Exchange — have been currently prescribed under the company law rules as permitted for listing.
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Some key features of the above mentioned enactments are:
Only Indian public companies, listed or unlisted, are allowed to issue and list their shares on an international exchange. As of now, the framework allows unlisted Indian public firms to list their shares on an international exchange. The Securities and Exchange Board of India is in the process of issuing the operational guidelines for listed Indian public companies.
In other words, it is not mandatory for an unlisted public company intending to list on international exchanges to also list on domestic exchanges. However, there is no restriction on such companies to opt for listing on domestic as well as international exchanges.
Flexibility has been provided to the company to issue fresh shares as well as the offer for sale by existing shareholders.
Certain companies (such as Section 8 companies, those with negative net worth, or with outstanding deposits from the public) are ineligible for listing their equity shares.
Companies in the prohibited sectors (as laid down under the foreign direct investment norms) are ineligible for listing their equity shares. Companies in the permitted sectors need to comply with sectoral caps, pricing norms, and other conditions.
Only the “permissible holder” can invest, trade, or hold equity shares of Indian companies listed on international stock exchanges. For the purposes of this clause, the permissible holder is not a person resident in India
The following persons are not eligible to subscribe to the shares listed on international exchanges: persons resident in India; and citizens/entities (including their beneficial owners) of a country which shares land border with India, without government approval.
The mode of payment and other attendant conditions for remittance of proceeds of issue would be specified by the Reserve Bank of India (RBI).
Recently, the RBI, via a notification dated April 19, amended the relevant Indian exchange control regulations, broadly laying down the following mode of payments and other conditions:
Indian companies are now permitted to hold the funds raised, which are pending utilisation or repatriation to India in a foreign currency account maintained with banks outside India.
The amount of consideration for purchase/sale of equity shares of the Indian company listed on international exchanges shall be paid by the subscriber through banking channels either directly to the foreign currency account of the company as inward remittance from abroad or deposited in a bank account in India. Further, the sale proceeds (net of tax) shall be remitted outside India or may be credited to the account of the permissible holder.
The changes appear to provide the operational flexibility to Indian companies to retain funds in their overseas foreign currency banks and utilise them for their overseas requirements in compliance with the Indian exchange control laws. Greater clarity from the regulator in this regard will be helpful.
The series of changes in various regulations signifies India’s commitment to attracting foreign investments. There is an understanding in the industry that some sectors are valued better in overseas jurisdictions. The market is hopeful that the government will lay down a plan to permit listing in offshore jurisdictions as well. Also, the government could consider listing of private companies in international stock exchanges at GIFT IFSC in the future.
The framework discussed above will allow Indian public companies, especially start-ups and firms in the sunrise and technology sectors, to access global capital beyond the domestic exchanges. This is expected to enable better valuation of Indian companies in line with global standards of scale and performance, boost foreign investment flows, unlock unprecedented growth opportunities, and broaden the investor base.
Indian public companies will have the flexibility to access both markets—the domestic market for raising capital in INR and the international market at IFSC for raising capital in foreign currency from global investors. This will particularly benefit Indian companies that are going global and having an ambition of expanding their presence in other markets.
Punit Shah is a partner and Vishal Lohia is a principal at Dhruva Advisors LLP.
Co-authored with Meet Mehta, principal, Dhruva Advisors LLP,
Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.
By Punit Shah & Vishal Lohia
During the later half of 2023, finance minister Nirmala Sitharaman had mentioned that India was looking to reconsider the proposal of allowing domestic firms to list on foreign stock exchanges directly. She also indicated that the government was considering the option of listing, starting with GIFT International Financial Services Centre (GIFT IFSC) in Gandhinagar, Gujarat.
In line with this, the government made changes to the Companies Act (on October 30, 2023) and to the relevant company law rules (on January 24), laying down the framework for entities eligible to directly list on international stock exchanges. Simultaneously, changes were made to the Indian exchange control laws (on January 24). The international stock exchanges at GIFT IFSC under the regulatory supervision of the International Financial Services Centres Authority — India International Exchange and NSE International Exchange — have been currently prescribed under the company law rules as permitted for listing.
Some key features of the above mentioned enactments are:
Only Indian public companies, listed or unlisted, are allowed to issue and list their shares on an international exchange. As of now, the framework allows unlisted Indian public firms to list their shares on an international exchange. The Securities and Exchange Board of India is in the process of issuing the operational guidelines for listed Indian public companies.
In other words, it is not mandatory for an unlisted public company intending to list on international exchanges to also list on domestic exchanges. However, there is no restriction on such companies to opt for listing on domestic as well as international exchanges.
Flexibility has been provided to the company to issue fresh shares as well as the offer for sale by existing shareholders.
Certain companies (such as Section 8 companies, those with negative net worth, or with outstanding deposits from the public) are ineligible for listing their equity shares.
Companies in the prohibited sectors (as laid down under the foreign direct investment norms) are ineligible for listing their equity shares. Companies in the permitted sectors need to comply with sectoral caps, pricing norms, and other conditions.
Only the “permissible holder” can invest, trade, or hold equity shares of Indian companies listed on international stock exchanges. For the purposes of this clause, the permissible holder is not a person resident in India
The following persons are not eligible to subscribe to the shares listed on international exchanges: persons resident in India; and citizens/entities (including their beneficial owners) of a country which shares land border with India, without government approval.
The mode of payment and other attendant conditions for remittance of proceeds of issue would be specified by the Reserve Bank of India (RBI).
Recently, the RBI, via a notification dated April 19, amended the relevant Indian exchange control regulations, broadly laying down the following mode of payments and other conditions:
Indian companies are now permitted to hold the funds raised, which are pending utilisation or repatriation to India in a foreign currency account maintained with banks outside India.
The amount of consideration for purchase/sale of equity shares of the Indian company listed on international exchanges shall be paid by the subscriber through banking channels either directly to the foreign currency account of the company as inward remittance from abroad or deposited in a bank account in India. Further, the sale proceeds (net of tax) shall be remitted outside India or may be credited to the account of the permissible holder.
The changes appear to provide the operational flexibility to Indian companies to retain funds in their overseas foreign currency banks and utilise them for their overseas requirements in compliance with the Indian exchange control laws. Greater clarity from the regulator in this regard will be helpful.
The series of changes in various regulations signifies India’s commitment to attracting foreign investments. There is an understanding in the industry that some sectors are valued better in overseas jurisdictions. The market is hopeful that the government will lay down a plan to permit listing in offshore jurisdictions as well. Also, the government could consider listing of private companies in international stock exchanges at GIFT IFSC in the future.
The framework discussed above will allow Indian public companies, especially start-ups and firms in the sunrise and technology sectors, to access global capital beyond the domestic exchanges. This is expected to enable better valuation of Indian companies in line with global standards of scale and performance, boost foreign investment flows, unlock unprecedented growth opportunities, and broaden the investor base.
Indian public companies will have the flexibility to access both markets—the domestic market for raising capital in INR and the international market at IFSC for raising capital in foreign currency from global investors. This will particularly benefit Indian companies that are going global and having an ambition of expanding their presence in other markets.
Punit Shah is a partner and Vishal Lohia is a principal at Dhruva Advisors LLP.
Co-authored with Meet Mehta, principal, Dhruva Advisors LLP,
Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.
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