Indian companies await more govt action on direct overseas listing

Latest move may not spur companies to list "overseas", say experts

The government's move to allow direct overseas listing of some Indian companies might require more follow-up action, as the latest measures will not drive local firms to chalk out foreign listing plans, say experts.

The centre on Monday amended the Companies Act, 2020, to allow a specified class of securities, issued by certain public companies, to list on stock exchanges in permitted foreign jurisdiction — only the GIFT City's International Financial Services Centre (IFCS) at present.

The move follows Finance Minister Nirmala Sitharaman’s remarks in September about permitting Indian companies to undertake "direct foreign listings”.

Industry players say the government will need to give more clarity to truly open up the direct overseas listing avenue for local companies. To begin with, it will have to disclose the class of securities it intends to allow. It will also need to permit more foreign jurisdictions like the US, as the GIFT City IFSC is yet to develop its investor and liquidity base, they say.

“At this stage, listing on Indian bourses may be better, as there is a real market trading with good trading volumes. However, some sectors are better valued in overseas markets. This change aims to help develop IFSC as a global market, but it may not immediately have a big impact on Indian companies,” says Manan Lahoty, partner, Induslaw.

A few domestic companies have opted to list on overseas bourses by issuing depository receipts or by creating a foreign holding company structure. These will continue to remain viable options in the interim, according to experts.

“To develop a good investor base, IFSCs would have to introduce a framework commensurate with marquee overseas exchanges. However, the development of a deep investor base will also require companies of a particular calibre to be listed on IFSCs among other things,” says Abhimanyu Bhattacharya, partner, Khaitan & Co.

At present, only 19 foreign portfolio investors (FPIs) have registered at the GIFT City IFSC. Experts believe the ecosystem at India’s first IFSC will have to mature further to attract investors and issuers. “Any new capital market takes many years to develop. Some FPIs that have been trading in the Indian market may also participate through the IFSC route to save on tax and forex costs. Some companies already listed on domestic exchanges may go for dual listing to benefit from such FPIs,” adds Induslaw’s Lahoty.

“It appears the government is taking a stage-wise approach to permit direct listing on overseas exchanges. If we create a dollar environment in India in IFSCs, it will help keep companies onshore with offshore benefits,” says Bhattacharya.

Experts also see a need for better clarity on aspects like taxation, foreign investor regulations, market making, takeover code regulations and disclosures to facilitate new listings.

“While the companies which will be eligible for such a route are yet to be specified, it can be said that public companies, for which regulatory framework is comprehensive and disclosure and compliance norms are at relatively high levels, could be the initial entrants,” says Saurabh Tiwari, partner, DSK Legal.

The IFSC Authority had already issued the regulation for capital raising at GIFT City. At present, most of the equity trading at the GIFT City IFSC is concentrated in Nifty derivatives contracts, which were transitioned from the Singapore Exchange earlier this year.