Government allows Indian public companies to directly list shares overseas.
Government’s vision for betterment of Indian companies:
In late January 2020 Government of India communicated to media that they are planning to allow direct listing of Indian companies in foreign markets. This will help Indian companies to not only rely on domestic markets but they can also raise capital on large scale from various foreign markets which will help companies in diversification and growth. This move can directly help Indian companies in increasing their turnover and profits.
Till now Indian companies go for the depository receipts to attract investors globally but this is bit unfamiliar amongst the investors globally and been less attractive in recent years. A minimum of 15 Indian companies currently attract foreign investors via ADR’s and GDR’s. These companies includes Reliance Industry, HDFC Bank, Infosys and many others.
Green signal by Indian Government:
Finance Minister Nirmala Sitharaman had announced an economic package of ₹ 20 lakh crore under government’s Atma Nirbhar Bharat Abhiyan. This is done for the revival of Indian Economy. It is an umbrella of massive ₹ 20 lakh crore economic booster package. The government ensured to provide some relaxation in all the sectors.
To improve “ease of doing business” in India, government allowed Indian public companies to list their shares in foreign markets. This provision will help Indian companies for better valuations, rapid growth and expand their businesses on a large scale. This move will help Indian companies to get funds at a cheaper rate from various foreign markets. This will directly help Indian economy to recuperate in a speedy way.
Government noted private companies that listed Non-convertible debentures (NCDs) on Indian stock exchanges not to be considered as listed companies. It is also expected that this provision is to prevent Indian companies to register themselves in foreign markets like Singapore and London for raising a fund and going global.
Existing vs proposed rule:
The existing rule states that companies which are listed on Indian stock markets can only list their company in foreign markets. Whereas, new proposed rule states that there is no compulsion for it. Indian companies can list themselves directly in various foreign markets to raise capital.
Until now, only American Depository Receipt (ADR’s) and Global Depository Receipt (GDR’s) can collect capital from foreign market sources. At least 15 Indian companies follow this mechanism to raise capital from foreign markets. However, this is not much familiar amongst the global investors. To eradicate this the new provision will allow Indian companies to a fresh new issue of shares or sale of existing holdings.
Rules and regulation:
All the required rules and regulation for listing an Indian company at abroad will be notified soon by the government. Once the provisions to the Foreign Exchange Management Act (FEMA) and Company Law Regulations are passed. Media noted Indian foreign exchange control laws do not require free capital convertibility, and there are other regulatory limits on capital account transactions.
Nevertheless, this proposal has been under discussion for a couple of years between stakeholders and regulators, especially regarding the selection of foreign jurisdiction. SEBI had indicated in 2018 that this route would be open only to the financially sound companies, so that the mechanism could not be used for exploitation. Sources indicated that final rules in this respect would probably be based on the Financial Action Task Force’s recommendations.
Finance Minister Nirmala Sitharaman noted, this provision of direct listing. If Indian public companies are not available over the globe but will be allowed in permissible jurisdictions.
However, the approval will not come without any protections. The Indian government is likely to go along with the recommendations raised by SEBI in 2018. This requires a direct listing of Indian companies in abroad. It had suggested 10 overseas jurisdictions, including the US, UK, Japan, China, Hong Kong and South Korea for Indian companies to list. The selection was based on the fact that these jurisdictions are part of the Financial Action Task Force (FATF), The Anti-Money Laundering Global Task Force (GTF-AML) and IOSCO.
SEBI also suggested that this provision should be available only for financially stable . This will aid to minimize frauds and manipulation. The firms with a paid-up capital of 10% will be allowed to list in the foreign market.
The provision of capital raising in an overseas market can also have an impact on the Indian currency market. Since the flow of overseas capital can put pressure on the Indian currency and may lead to volatility. RBI and SEBI can be jointly involved to check this.