Rules for direct listing of securities by Indian companies on international exchanges of GIFT IFSC notified
Investors from countries such as China will be able to participate in direct listing of equity by Indian entities on international stock exchange only after government approval, a Finance Ministry notification issued on Wednesday said. The scheme is beginning with GIFT IFSC as permissible jurisdiction and NSE International Exchange India International Exchange as international exchanges.
The Finance Ministry amended Foreign Exchange Management (Non-debt Instruments) Rules, 2019, and notified the ‘Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme’. Simultaneously, the Corporate Affairs Ministry has issued Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024.
Defining the permissible holder, changes in rules governing FEMA say this means a holder of equity shares of the company which are listed on international exchange, including its beneficial owner: Provided that “such a holder who is a citizen of a country which shares land border with India, or an entity incorporated in such a country, or an entity whose beneficial owner is from such a country, shall hold equity shares of such public Indian company only with the approval of the Central Government.”
As on date, China, Bangladesh, Pakistan, Nepal, Bhutan and Myanmar share land border with India. Among these, investors from China are interested in putting money in Indian entities more specifically in start-ups. The government has already imposed restrictions on Chinese companies and investors without naming country specific in regulation. Same appears to have been followed here.
Amendments in the rule permit a public Indian company to issue equity shares on international exchange or the existing shareholders to offer equity shares. However, if a public Indian company, any of its promoters, promoter group or directors or selling shareholders debarred from accessing the capital market, then they cannot offer share. by the appropriate regulator. Same will be applied in case if wilful defaulter or fugitive economic offender or if a company is under probe.
Pricing formulae
The notification also talked about pricing formulae. In case of listed entity, shares shall be issued at a price, not less than the price applicable to a corresponding mode of issuance of such equity shares to domestic investors. In case of unlisted one, price will be determined by a book-building process and shall not be less than the fair market value under applicable rules or regulations under the FEMA.
A Finance Ministry statement said the new scheme will reshape the Indian capital market landscape and offers Indian companies, especially start-ups and companies in the sunrise and technology sectors, an alternative avenue to access global capital beyond the domestic exchanges. “This is expected to lead to better valuation of Indian companies in line with global standards of scale and performance, boost foreign investment flows, unlock growth opportunities and broaden the investor base. The public Indian companies will have the flexibility to access both markets i.e. domestic market for raising capital in INR and the international market at IFSC for raising capital in foreign currency from the global investors,” it said.
According to Manendra Singh, Partner with Economic Laws Practice, the rules clearly provide that permissible holder for such securities will be person resident outside India and such investment will be subject to sectoral limits and caps as per foreign exchange norms. Also, rules necessitated government approvals first for investors from countries sharing land border with India. “We will have to now wait and see whether Indian public companies utilise this route to avail foreign capital.,” he said.