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Govt Lowers Public Float Requirement for IFSC Listings to 10%
Business, Equities, Market News, Markets - September 11, 2024

Govt Lowers Public Float Requirement for IFSC Listings to 10%

Govt Lowers Public Float Requirement for IFSC Listings to 10%

The Indian government has recently announced a significant change to the listing requirements for Indian companies seeking to list on international exchanges within the International Financial Service Centres (IFSCs) at Gandhinagar’s Gift City. This move is aimed at facilitating easier access to global capital for Indian startups and companies in emerging sectors.

Previously, Indian companies required a minimum of 25% public shareholding for continued listing on stock exchanges in Gift City, which was the same threshold as for listing on Indian exchanges. Under the revised guidelines, public Indian companies wishing to list solely on international exchanges at the IFSCs will now only need to offer and allot at least 10% of their post-issue capital to the public. This is a substantial drop from the previous requirement of 25% public shareholding for continued listing on IFSC exchanges. This represents a substantial relaxation of the previous regulations.

The finance ministry highlighted that this change in the Securities Contracts (Regulation) Rules, 1957 (SCRR) is intended to encourage more Indian entities to list on IFSC exchanges. By lowering the mandatory public offering from 25% to 10%, the government hopes to enable Indian companies to list globally while still retaining a greater degree of control over their businesses.

This move is also expected to incentivize foreign investments and boost foreign exchange inflows into the country. Mohit Chaudhary, a legal expert, identified the government’s dual objectives behind the reduced listing requirements. Firstly, it aims to encourage more Indian companies to list on IFSC exchanges, as the lower public float allows them to maintain greater control over their businesses while still attracting public capital. Secondly, the move is intended to incentivize foreign investments and boost foreign exchange inflows into the country.

However, Chaudhary also highlighted a potential downside, noting that the reduction in the public float would result in fewer shares available to the public, which could impact market liquidity and price discovery.

The government’s decision to allow Indian companies to list abroad was first announced in 2020 as part of a pandemic relief package. Last November, the ministry of corporate affairs took a further step by permitting certain unlisted companies to list directly on foreign stock exchanges. The plan is to initially roll out this overseas listing option through the IFSCs at Gift City, before potentially expanding it to actual overseas listings.

This move by the Indian government is a significant and strategic decision that reflects its broader efforts to position the country as a global financial hub. By relaxing the listing requirements for Indian companies on IFSC exchanges, the government is aiming to create a more attractive and accessible environment for Indian businesses to access international capital markets.

The potential benefits of this policy change are manifold. It could help Indian startups and technology companies raise funds more easily to fuel their growth and expansion, while also attracting greater foreign investment into the country. This, in turn, could strengthen India’s position as an attractive destination for global capital and enhance its reputation as a hub for innovation and entrepreneurship.

However, it will be crucial for policymakers to carefully monitor the impact of the reduced public float requirement to ensure that it doesn’t negatively affect market dynamics or investor confidence. Striking the right balance between facilitating easier access to global capital and maintaining robust corporate governance and market integrity will be essential for the success of this initiative.

Overall, the Indian government’s move to ease the listing requirements for Indian companies on IFSC exchanges is a proactive step towards enhancing the country’s competitiveness in the global financial landscape. As Indian businesses continue to expand their global footprint, this policy change could play a crucial role in supporting their ambitions and driving further economic growth and development in the country.

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Maruti Suzuki’s new facility faces short delay; 2025-26 production kick-off

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South Indian Bank Q2FY25: Strong Profit, NIMs Contract, Asset Quality Improves
Business, Equities, Market News, Markets - September 3, 2024

Shriram Finance Targets $1.5 Billion in Overseas Funding

Shriram Finance Targets $1.5 Billion in Overseas Funding

Shriram Finance, a prominent non-banking financial company (NBFC) in India, has announced its plans to raise up to $1.5 billion from international investors in the current fiscal year (2024-25). This strategic move marks a significant step towards diversifying its funding sources and bolstering its financial resilience in the face of recent regulatory changes.

The decision to seek international capital is primarily driven by the Reserve Bank of India’s (RBI) mandate for lending institutions to allocate more capital for loans extended to NBFCs. This regulatory change has increased the cost of domestic borrowing, making it more challenging for NBFCs to secure affordable financing. By tapping into the global capital markets, Shriram Finance aims to mitigate the impact of these regulatory changes and secure funding at potentially more favorable terms.

Shriram Finance is targeting to raise between $1.25 billion and $1.5 billion through a combination of loans and bonds placed in the international market. The company has already secured $300 million of this amount and is actively pursuing additional funding in the coming months. This strategic approach demonstrates Shriram Finance’s confidence in its ability to attract foreign investors and its commitment to achieving its ambitious fundraising goals.

The company’s decision to diversify its funding sources is a testament to its prudent financial management. Prior to the planned overseas fundraising, Shriram Finance had a well-balanced funding portfolio. Shriram Finance’s total liabilities were approximately 24.8% bank borrowings, 8.3% foreign currency loans,and 5.8% bonds. This diversified approach has provided the company with a degree of financial flexibility and resilience in the face of changing market conditions.

The RBI’s regulatory changes are expected to have a more significant impact on smaller NBFCs with a higher dependence on domestic banks. These institutions may face challenges in securing affordable financing due to their lower credit ratings and limited access to alternative funding sources. Shriram Finance, with its strong credit profile and diversified funding strategy, is well-positioned to weather the storm and capitalize on the opportunities presented by the evolving regulatory landscape.

Shriram Finance is confident in its growth prospects, even in light of recent regulatory changes. The company anticipates a 15-16% increase in its assets under management (AUM) in the quarter ending September 2024. However, this growth is expected to be slower than the previous quarter’s 21%, which was driven by a surge in lending for large commercial vehicles.

Looking ahead, Shriram Finance’s successful fundraising efforts and continued focus on diversification are likely to strengthen its financial position and enable it to pursue strategic growth initiatives. Shriram Finance’s future success hinges on its ability to effectively adapt to and benefit from the changing regulatory landscape.

While Shriram Finance’s overseas funding plans offer significant promise, there are several factors that could influence the outcome. These include fluctuations in global interest rates, changes in currency exchange rates, the regulatory environment in the countries where Shriram Finance plans to raise funds, and the overall sentiment among international investors towards emerging markets.

Shriram Finance’s decision to raise up to $1.5 billion from overseas investors is a bold and strategic move that reflects the company’s commitment to growth and financial resilience. By diversifying its funding sources and tapping into the global capital markets, Shriram Finance is positioning itself to navigate the challenges and capitalize on the opportunities presented by the evolving regulatory landscape. The successful execution of its fundraising plans could pave the way for further expansion and solidify Shriram Finance’s position as a leading player in the Indian NBFC sector.

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Sugar Industry Fears New Norms May Stifle Growth and Innovation

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Real estate equity waterfall
Editorials, Expert Opinions - July 20, 2022

Real estate equity waterfall : How they work and what to look for.

Real estate equity waterfall : How they work and what to look for.

 

Equity Waterfall:

When we buy a property, we choose a combination of equity and debt to fund it. In exchange for their equity investment, our buyers are entitled to the profit and revenue of the real estate. The waterfall determines how earnings and profits are split between you and our investors.

The layout of the waterfall may vary from one contract to another, and it is necessary to look at the specifics of each agreement to evaluate if the separation is equal and fair for all the parties concerned. All information is presented in a contract called an operating agreement, that will be thoroughly and carefully reviewed in anticipation of the allocation of capital to the real estate deal. A waterfall, also known as a waterfall model, is a legal term included in an operating agreement which specifies how money is paid out, where it is paid out, and to when it is paid out during real estate equity transactions.

 

Waterfall Features:

1. Preferred Returns:

Preferred returns are described as the first claim benefit of the project before the target return is achieved. Preferred return simply generates another cash fund stream, and after the cash flow has been allocated to preferred owners, the remaining stream capital transfers to the next stage and divides as decided.

 

2. Lookback Provisions:

Lookback clauses are used as cash flow is distributed before the asset is disposed of. If the Limited Partners do not get a guaranteed rate of return decided upon settlement, the General Partner is forced to offer up a percentage of the cash income that was allocated to them before the transaction.

 

3. Catchup Provisions:

A catch-up clause ensures the Joint Partner 100 percent of the profits of the agreement before the negotiated rate of return is reached. If the specific rate of return has been met, all the residual earnings should go to the General Partner before the defined rate of return has been reached.

 

Operating agreement:

1. Members:

The partners of the agreement are those who are eligible to benefit from the successful transaction of the real estate. In certain instances, there seems to be a variety of limited partners and general partner. The GP is liable for identifying the opportunity, reviewing it, acquiring it, completing it, and handling the asset until the sale is complete. Usually, the GP will invest a limited portion of the total equity used to fund the deal. The LP’s are purely individual investors. They put their money with the GP and hope to obtain it back, plus a profit, from the cash flow produced by the real estate. The LPs offer the remaining of the capital required to finance the transaction.

 

2. Capital:

If the cash flow generated by the estate fails to reach the necessary return threshold in a specified period, the cash flow shortfall can or can not be carried forward to the next year. If the investor ‘s financial flows are accumulated, the deficit will continue over the following cycle before the cash flow is adequate to clear it. Cumulative cash holdings are beneficial to the LPs as it ensures that the GP does not obtain any funds before the deficit is erased. When the capital investments are not combined, they are more beneficial to the GP.

 

3. The Return Hurdles:

Return hurdle is the rates of return at which the capital investment divides between the LP and GP varies. These are designed to enable the GP to manage properties as profitably as practical. The better the profit that the property makes, the more income the GP gets to earn compared to their original investment.

 

4. Calculating Returns:

The return hurdle can be evaluated using several different approaches, although the two most popular are the multiple of equity and the internal rate of return. The internal cost of the return is the average discount rate, which determines the net present value of the potential cash flows, equal to zero, negative, and positive. The capital multiple is measured as the ratio of the capital received to the money invested and represented as a sum out of the second decimal point.

 

5. Simple Split:

The final way of deciding the configuration of a waterfall is a straightforward break and might have no desired return to investors. For example, 50 percent of all capital investment and profit is paid to LP and 50 percent of all capital investment is paid to the GP. This is popular in purchases where there might not be a high degree of complexity or a lot of costs, so the goal is to make distributions very easy.

The profitability of an investment from the investor’s point of view of return can rely on well-defined allocations that are properly distributed to the appropriate entities also during the investment holding period.

 

 

 

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