In a step towards allowing Indian companies to list on foreign exchanges, the Ministry of Corporate Affairs (MCA) on Tuesday brought into force the provision to allow certain public companies to issue a class of securities for listing in foreign stock exchanges.
The provision, which comes into effect from 30 October, was introduced in the Companies Amendment Act 2020. It says, “Such class of public companies may issue such class of securities for the purposes of listing on permitted stock exchanges in permissible foreign jurisdictions or such other jurisdictions, as may be prescribed.”
This would open the doors for the listing of certain classes of Indian public companies, which would be notified by the MCA, to list in permitted foreign jurisdictions starting with the International Finance Service Centre (IFSC) in Gift City, Gujarat.
MCA now has to notify the class of securities that the public companies would be allowed to issue along with the foreign jurisdictions and the class of public companies.
A public company, according to the Companies Act, is a company which, unlike a private company, does not restrict the transfer of shares.
Finance Minister Nirmala Sitharaman had said in September, “We are looking at this thing (foreign listing) commencing with the International Financial Services Centre at GIFT city. Once that is done, we may look at moving further.” The Finance Minister was addressing the media after the 12th India-UK Economic and Financial Dialogue.
“The notification of amendments to Section 23 aims to facilitate the direct listing of shares of Indian public companies in foreign jurisdictions including GIFT city. This has been a long-pending industry demand. Post-notification, MCA may issue necessary rules to provide a further regulatory framework in this regard. MCA has also reserved rights to exempt companies seeking to be foreign-listed from compliance with certain provisions of the Companies Act,” said Ankit Singhi, partner at Corporate Professionals.
Section 5 of the Amendment Act says, “The Central Government may, by notification, exempt any class or classes of public companies referred to in sub-section (3) from any of the provisions of this Chapter, Chapter IV, section 89, section 90, or section 127 and a copy of every such notification shall, as soon as may be after it is issued, be laid before both Houses of Parliament.”
Some of these provisions are related to the public issue of shares, share capital, buyback, and disclosure of beneficial interest.
“Overseas listing can help Indian companies attract more capital and diversify their investor base. Companies intending to list overseas have to pay more attention to corporate governance and overall management,” said Shrishail Kittad, partner at IndiaLaw LLP.
One of the advantages of listing in GIFT city is that trade there is dollar-denominated, which saves foreign investors the additional cost of hedging and currency conversion.
Experts said that MCA’s notification also follows the Securities and Exchange Board of India (Sebi)’s recommendations of 2018, allowing Indian corporates access to a wider arena for raising capital by directly listing their equity shares in foreign stock exchanges as opposed to raising capital through Depository Receipts.
“It is expected that Indian corporates will now have access to diverse pools of capital, a wider base of investors, and better valuation for tech businesses. The growing trend of Indian founders incorporating their startups abroad or flipping the ownership to overseas structures for ease of capital raising, valuation, and regulatory reasons may also see a reduction following the move to permit direct overseas listing,” said Jay Parikh, partner at Luthra and Luthra Law Offices India.
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