Last month, the Union Ministry of Finance through an amendment in the Foreign Exchange Management (Non-debt Instruments), Rules 2019, allowed the direct listing of Indian securities by public Indian companies on International Exchanges (IEs) operating on GIFT IFSC (Gujarat International Fin-Tech City- International Financial Services Centre In India).
Also, IFSC in India has been recognized as a permissible jurisdiction. At present, the GIFT IFSC is the maiden international financial services center in India and has recognized two permitted stock exchanges namely Indian International Exchange and NSE International Exchange.
For this, the Ministry of Finance has notified a new schedule XI in the NDI Rules which provides for the ‘Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme’
In addition to the framework provided under the Scheme, the Ministry of Corporate Affairs has also notified the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024
This comes in the backdrop of the amendment of the Section 23 of the Companies Act, 2013 through the Companies (Amendment) Act, 2020 whereby the Government allowed certain classes of public companies to list prescribed classes of securities in permitted foreign jurisdictions.
The Salient Features of the Scheme and Listing Rules notified are as below:
1. Which companies are eligible to be listed on the IEs?
Two categories of public companies have been allowed to list on the IEs, firstly, the companies that are already listed on the domestic exchange, and secondly, the unlisted public companies having no partly paid up shares.
The Listing Rules for getting securities listed on IEs apply to an unlisted Indian public company having no partly paid-up shares, and they are required to file its prospectus in e-Form LEAP-1 with the Registrar of Companies. For already listed public Indian companies, Securities and Exchange Board of India (“SEBI”) is in the process of issuing the operational guidelines.
Further, the Scheme specifies detailed guidelines for eligibility of companies proposing to be listed, which includes restrictions such as promoter or director or the holder offering equity shares should not be a wilful defaulter or debarred from accessing the capital market, etc, among others.
2. Whether the listed securities on IEs would rank pari passu with the securities on the domestic stock exchange?
Any issue of new shares for listing on the IEs or offer of equity shares of existing shareholders shall be subject to prohibited activities, sectoral caps and other regulations as per the FDI Regulations. Equity shares of the public Indian company listed on an IE shall be in dematerialised form and shall rank pari passu with equity shares listed on the domestic stock exchange.
3. Who is eligible to invest?
The Scheme has introduced the concept of permissible holder to mean a person who is a non-resident of India, who are permitted to hold the shares of the company listed on the IE. Accordingly, a person resident in India is not permitted to hold shares listed on IEs. Further, the non-resident persons who are citizens of / an entity incorporated in a land border sharing country would require prior approval of the Central Government as per the Press Note 3 (2020) by the Central Government.
4. What is the limit for investment?
A non-resident is permitted to only hold less than ten percent, as applicable to the foreign portfolio investors under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019.
5. Who can exercise the voting rights?
The public Indian companies listed on IEs need to ensure that the voting rights are exercised directly by the permissible holder or through their custodian, pursuant to instruction only from the permissible holder.
6. What are the Pricing norms of the IEs?
a. A company already listed on the domestic stock exchange cannot issue securities on the IEs at a price lower than the price at which the securities are issued in the domestic stock exchange.
b. In case of initial listing of equity shares of unlisted public companies on the IE, the issue or transfer of equity shares shall be determined by a book- building process and cannot not be less than the fair market value under the Foreign Exchange Management Act, 1999.
c. Subsequent issuance or transfer of shares for listing of additional shares, will be based on applicable pricing norms of the IEs and the rules and regulations of the International Financial Services Centres Authority.
7. What are the post listing compliances?
An Indian company listed on IEs will have to comply with Indian accounting standards for preparing their financial statements, in addition to any other accounting standard, as may be specified by SEBI or the concerned stock exchange.
Conclusion
Listing of Indian securities on IEs has enabled the Indian companies to raise capital from another medium. This new framework is expected to held Indian companies to achieve better valuation in line with global standards of scale and performance, boost foreign investment flows, unlock growth opportunities and broaden the investor base. Under the Scheme and Listing Rules the Indian investors are not permitted to invest on the IEs and can only access the securities listed on the domestic stock exchange.
The public Indian companies will have the flexibility to access both markets i.e. domestic market and the international market at IFSC for raising capital from the global investors. It is also expected to provide a boost to the capital market ecosystem at GIFT IFSC by provision of new investment opportunities for investors, diversification of financial products and by enhancing liquidity. It remains to be seen whether the foreign stock exchanges would also be included within the definition of permitted jurisdiction or whether the intention is to list on the IE.
Author: Abhishek Kale, Manish Parmar, Niyati Shroff & Shikha Modi