Finance Minister Nirmala Sitharaman announced on Friday that domestic companies will soon be permitted to directly list their securities on overseas exchanges in certain jurisdictions, expanding capital-access opportunities for businesses in India, which is poised to surpass Germany and Japan and become the world's third-largest economy within the next few years.
The stage-gate procedure will begin with a listing on the International Financial Services Centre (IFSC) in Gandhinagar's Gift City. In the future, they will be allowed to list in seven or eight overseas jurisdictions. "In May of 2020, I stated that direct listing of Indian securities in foreign jurisdictions would be permitted. Now, I am delighted to announce that the government has decided to permit the direct listing of both listed and unlisted companies on IFSC exchanges," Sitharaman said.
Allowing more foreign investors to participate in India's development will also increase the value of domestic companies. “This is a major step forward and will also facilitate access to global capital and result in a better valuation for the Indian companies,” the minister said. Amisha Vora, Chairperson & MD, Prabhudas Lilladher, said: “Globally, and particularly in the US, some of the Indian businesses are getting much better valuation and wider investor base compared to India. Obviously, it is a large pool of opportunities.”
“Considering the fact that the Indian economy is on an upswing now, it will allow Indian companies to attract more growth capital. Also, the decision will have great potential to boost the Indian startup industry,” Vora said.
Currently, Indian companies cannot list their equity shares directly on foreign stock exchanges without first listing in Mumbai. Similarly, foreign corporations cannot list their equity shares directly on Indian stock exchanges.
Foreign equity capital markets are only accessible to companies through American Depository Receipts (ADRs) and Global Depository Receipts (GDRs).
In a few weeks, a senior finance ministry official will announce the regulations for direct overseas listing.
"It's an alternative route that the government wants to offer domestic firms," a finance ministry official explained.
Currently, Indian corporations are permitted to directly list their debt securities on foreign stock exchanges via rupee-denominated masala bonds and foreign currency convertible bonds (FCCB).
Only through Indian Depository Receipts (IDRs) can foreign firms gain access to India's capital markets.
In 2018, a panel of the Securities and Exchange Board of India (Sebi) recommended that only those jurisdictions with a treaty obligation to disclose information in the event of an investigation should be permitted to list Indian companies. It had proposed ten foreign jurisdictions with robust anti-money laundering regulations. These included the United States and the United Kingdom, Japan, South Korea, and Hong Kong.
Sitharaman made the announcement about direct overseas listing for Indian entities while speaking at an event in Mumbai organised by the capital-markets regulator to inaugurate the AMC repo clearing and a corporate debt market development fund (CDMDF).
Through an asset purchase mechanism, the CDMDF will serve as a standby entity and provide stability to the corporate bond market during periods of market stress.
With a guarantee of Rs 30,000 crore from the National Credit Guarantee Trust Company and over Rs 3,000 crore from the mutual fund industry, the CDMDF will have recourse to capital of over Rs 33,000 crore to assist in negotiating a stress event.
Bond market milestones include the establishment of the Limited Purpose clearance Corporation (LPCC) and the AMC Repo Clearing Limited (ARCL) for clearance and settlement of corporate bond repo transactions.
The LPCC will concentrate on establishing a market for short-term borrowings against corporate bonds, allowing market makers to access cost-effective funding using their inventory and investors in corporate bonds to meet their short-term liquidity requirements without selling their assets.
This is anticipated to broaden the investor pool and increase the capital available to corporate bond issuers.
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