In a landmark move, Indian companies can now list on foreign exchanges


Indian companies can now list on foreign exchanges subject to certain conditions. This will help them access capital from world markets. Finance and Corporate Affairs Minister Nirmala Sitharaman had on July 28, announced that the government would allow domestic companies to list overseas.

The Ministry of Corporate Affairs has now issued a notification to this effect, stating that the new amendment in the Companies Act 2020 came into force with effect from October 30. The ministry has also notified the relevant section under the companies law in this regard. However, the rules for direct overseas listing of Indian companies are yet to be notified.

The move was actually announced in May 2020 as part of the Covid relief package. The initial plan was to allow companies to list at the International Financial Services Centre in GIFT City, Ahmedabad, and later, in any of the eight to nine specified overseas jurisdictions.

Currently, overseas listings by local listed entities are carried out through American Depository Receipts (ADRs) and Global Depository Receipts (GDRs). Section 5 allows certain classes of public companies to list their securities on permitted stock exchanges but only under permissible foreign jurisdictions or other jurisdictions as prescribed. On October 13, a senior government official said the ministry was looking at various aspects, including eligibility criteria, to prepare the rules for the direct listing.

It is expected that the Securities and Exchange Board of India (Sebi) framework will be the basis for future regulations in this area. Sebi had previously recommended a framework within which such direct listing could be facilitated. Proposals included allowing listings on stock exchanges in ten “permissible jurisdictions” with strong anti-money laundering regulations, including the NYSE, Nasdaq, the LSE and Hong Kong, along with other major exchanges in Japan, South Korea, France, Germany, Switzerland and Canada.

Indian companies will now have another medium for raising capital and they will need to meet governance norms at such specified jurisdictions. Over the years, the requirements of Sebi and the Indian stock exchanges have surpassed these concerns and this may not remain an issue.

According to Yash Ashar, Partner and Head – Capital Markets at law firm Cyril Amarchand Mangaldas, on the accounting front Ind AS (Indian Accounting Standard) is aligned largely to globally accepted accounting norms which is advantageous to Indian companies which can, in turn, avoid the time consuming and costly preparations of accounts in US GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards).

The likely challenge would be investors, according to Ashar. Will global investors provide the same valuations as in India? What would the commercial benefits of these listings be? These are some of the relevant questions Indian companies and their boards would have to grapple with in the coming months.



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