Direct listing of Indian companies on foreign exchange may take more time to implement

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Though the Centre has allowed Indian companies to list directly in overseas markets, there are still many hurdles to be crossed.

For one, the government will have to amend Section 23 of the Companies Act, 2013, and various approvals from the regulator and ministries are pending.

Currently, Indian companies can list their shares through American Depository Receipts (ADR) and Global Depository Receipts (GDRs).

While Depositary receipts allow investors to hold equity shares of foreign companies without the need to trade directly on a foreign market, under direct listing, companies incorporated in India can offer its ordinary shares to the foreign public without listing in Indian bourses.

The Securities and Exchange Board of India (SEBI) has identified specific exchanges which are part of the International Organisation of Securities Commissions (IOSCO). Some of them are the Shanghai Stock Exchange, Shenzhen Stock Exchange and the Hong Kong Stock Exchange.

This can prove to be a thorn now. “The government will now have to do a rethink, given the standoff between India and China at the border,” a source told Moneycontrol.

Lalit Kumar, Partner, J Sagar Associates, wonders why Singapore has been left out. “It is a bit of a surprise why the regulator has not considered Singapore stock exchange, which is a significant market for both equity and debt,” he told Moneycontrol.

Two other issues that need to be sorted out are the investment options for Indian residents and listing at the International Financial Service Centre (IFSC) in Gujarat International Finance-Tec City (GIFT City) in Ahmedabad.

“If Indian residents are allowed to invest in shares sold overseas by Indian companies, people will be able to use the Liberalised Remittance Scheme (LRS), which allows $250,000 for investments,” Arka Mookerjee, another Partner at J Sagar Associates, told Moneycontrol

“However, there is no clarity on whether Indian residents can invest in overseas exchanges. Also, the Reserve Bank of India (RBI) allows LRS only for individuals and not corporates. So regulations for corporates on this front will have to be addressed,” he said.

The IFSC has approached the Union finance ministry and Sebi for being considered as a foreign exchange. A source close to the development told Moneycontrol: “The government treat IFSC as a foreign exchange in terms of the regulation framework laid by Sebi, RBI and the Ministry of Finance. Still, Sebi, in expert committee report, did not mention us as a foreign exchange.”

Anil Choudhary, Partner, Finsec Law Advisors, said: “The authorities should make express rules to permit Indian companies to directly list on IFSC exchanges. The exchanges at GIFT are offshore exchanges and should be treated on a par with foreign exchanges and Indian companies should be able to access them.”

Divakar Vijayasarathy, founder & Managing Partner, DVS Advisors LLP, is hopeful.

“We expect new-age businesses, especially growth-stage tech companies, to lap up the opportunity. However, clarity is needed in Income Tax exemptions, FEMA compliances and Companies Act. The Indian stock exchanges will be up against tough competition from stock exchanges abroad and Sebi would be forced to reform exchange operations,” he said.

“Foreign Exchange Management Act (FEMA) regulations will need to be specifically amended, if resident shareholders are to be allowed to hold shares in offshore-listed Indian companies. NRIs, Persons of Indian Origin and Overseas Citizens of India are allowed to trade in and hold shares of offshore-listed Indian companies,” he said.