Govt allows direct listing of Indian companies in foreign stock exchanges

Finance Minister Nirmala Sitharaman has announced new measures to help companies raise funds, allowing the direct listing of Indian firms in overseas markets.  

According to the government statement, it has allowed certain measures as part of its ‘ease of doing business’ plan by which companies can now raise funds from permissible foreign jurisdictions and list their non-convertible debentures or NCDs on stock exchanges without being considered as listed companies.

Taken together, these two steps will significantly open up new opportunities for companies to raise funds during a difficult time when the economy is reeling under the effects of a pandemic induced lockdown. 

This move is expected to benefit local startups and companies which are looking to raise capital from foreign markets. Until now, many Indian companies used to incorporate in overseas markets such as Singapore and London with an intention to list directly on foreign exchanges. 

The latest reforms will perhaps stop this trend and encourage the companies to incorporate locally. Many startups including Grofers, Cars24, Udaan, Pine Labs, Craftsvilla, and Droom are registered in Singapore.

While the latest measure is expected to allow companies to offer an easier exit to their existing investors, the fresh guidelines will pave an easy way for firms such as Ola, Lenskart, Paytm, and Byjus which are preparing to go public over the next two-three years.

At present, Indian companies were allowed to access the overseas equity markets either through depository receipts such as American Depository Receipts or Global Depository Receipts regime or by listing their debt securities (foreign currency convertible bonds, masala bonds, et al) on foreign markets. 

Also, the government announced the suspension of fresh initiation of insolvency proceedings up to one year along with a decision to exclude Covid-19 related debt from the definition of “default” under IBC.

The ministry of corporate affairs and SEBI is yet to announce norms on the type of companies that can list overseas. In October 2018, SEBI had suggested that the route of listing themselves in the overseas markets directly should only be available to financially stable companies so that the chances of manipulation are minimized. 

During that time, it had also mentioned that only those companies having at least 10% of their paid-up capital on the Indian exchanges should be permitted to access the overseas listing. 

The availability of overseas listing is expected to increase the competitiveness of the local companies in terms of having access to deeper pools of capital with lower cost, broader investor base, better valuations, and in turn, boost the Indian brand globally.