Earlier this week, XED Executive Development withdrew its proposed $12-million IPO after receiving bids for barely 5 per cent of the issue, which the company attributed to the “global crisis.”
The education provider’s maiden share sale also coincided with one of the most volatile periods for equity markets, forcing it to reschedule its share sale twice.
The company said it may revisit the market at a more opportune time, citing factors “beyond its control.”
While market volatility played a role, several structural irritants continue to hinder GIFT City’s emergence as a viable listing venue.
Sources said that although XED had secured commitments of about $4 million from institutional and retail investors, concerns around ultimate beneficial ownership (UBO) norms proved to be a key stumbling block.
In its communication, XED also flagged procedural bottlenecks around know-your-customer (KYC) norms, along with global market uncertainty.
According to sources, the IFSC Authority (IFSCA) has approached the government and the
Reserve Bank of India (RBI) to amend the Foreign Exchange Management (Non-debt Instruments) Rules to permit Indian investors to participate in select companies seeking to list in GIFT City.
The regulator is also working to address challenges related to video-KYC for foreign nationals.
Currently, resident Indians and entities with Indian UBO are not allowed to hold shares in Indian companies listed in GIFT City. But they can invest in foreign companies listed on IFSC exchanges.
Market participants say this asymmetry is constraining the development of the ecosystem.
“Drawing from the China–Hong Kong model, where Chinese investors can access both mainland A-shares and Hong Kong-listed H-shares, a similar framework in India could be a game-changer for IFSC,” said a regulatory expert.
Investment bankers said that foreign companies looking to list in GIFT City have a relative advantage, as they can tap Indian capital via bank treasuries, investments under the Liberalised Remittance Scheme (LRS), and domestic mutual funds.
Despite the current challenges, a handful of overseas firms continue to explore listings in IFSC.
“There are three to four overseas companies that may file IPO papers over the next month, including one considering a direct listing without a fundraise. The smallest planned issue size is around $100 million,” said an investment banker.
However, industry executives cautioned that restrictive investment norms could divert issuers to competing global financial centres that offer more liberal regulations.
“The investment process in GIFT-IFSC needs to be simplified. Completing KYC for overseas investors within tight timelines remains difficult. In the absence of retail participation, liquidity and exit options will also remain constrained,” said an industry executive.
“Several GIFT City-based funds investing overseas could not participate due to Indian UBO restrictions, while other foreign investors faced KYC hurdles. As a result, issuers are left with a narrow investor base,” said a person familiar with the matter.
Another market participant said funds routed through the LRS framework could potentially be extended to enable Indian investment in domestic companies listing in GIFT City.
* Limited investor access and liquidity constraints
* KYC complexities, especially for foreign investors
* Restrictions on Indian investors with domestic UBOs
IFSCA looks to clear irritants
- Seeks changes to Fema rules to allow Indian participation
- Working to ease video-KYC norms
- 3-4 firms still exploring listing
 "GIFT City")