India’s markets regulator could soon allow the direct listing of Indian companies on foreign stock exchanges

Dec 5, 2018, 13:58 IST

^{(Image source- Reuters)}

A special committee appointed by the Securities and Exchange Board of India has recommended that Indian companies be allowed to directly list their shares on foreign bourses, citing the “internationalisation of capital markets”.
However, this will only extend to those countries that have information-sharing treaties with India and strong anti-money laundering regulations.
The move will likely be welcomed by India Inc as it will open a new source of capital, especially for Indian companies with a global footprint, and allow them to service their foreign currency-denominated debt in an easier manner.

A special committee appointed by the Securities and Exchange Board of India (SEBI) has recommended that Indian companies be allowed to directly list their shares on foreign bourses, according to media reports, owing to the "internationalisation" of capital markets.

The move follows a proposal for the same earlier this year from the securities regulator, after which it formed the panel to examine the implications of such a policy.

Interestingly, China was cited as an example of a country whose companies have benefited from this policy, with as many as 91 Chinese firms listing overseas in the last five years and raising tens of billions of dollars in the process.

However, the SEBI panel’s recommendation came with two conditions.

Firstly, this will only extend to those countries that have information-sharing treaties with India and strong anti-money laundering regulations, as indicated by their membership of the Financial Action Task Force. In its report, the panel specified 10 countries, the likes of which include US, UK, Switzerland, Germany, Hong Kong, Japan and China, that fulfilled these requirements.

Secondly, Indian companies need to comply with certain liquidity and capital requirements before being allowed to list overseas. These include a requirement that at least 10% of their paid-up capital be listed on an Indian bourse. In addition, the listing size has to be at least ₹10 billion and should have subscription guarantees from 200 investors or more.

The move will likely be welcomed by India Inc as it will open a new source of capital, especially for Indian companies with a global footprint, and allow them to service their foreign currency-denominated debt in an easier manner. It will also increase brand visibility, lead to better valuations and encourage Indian companies to compete on a global scale.

As per the existing policy, no company that is incorporated in India is allowed to directly list their stocks overseas despite being allowed to sell debt securities on foreign exchanges.

That is largely because the government has feared that this will lead to capital flight and that it would hinder the growth of the domestic stock market. Hence, the only avenue available to Indian companies is the sale of depositary receipts.

Similarly, foreign companies aren’t allowed to directly list their shares on Indian stock exchanges. The SEBI panel suggested a revision of this policy as well.

Should the Indian government decide to implement the recommendations, it will require significant amendments not only to the Companies Act, but also to the Foreign Exchange Management Act.