The ministry of corporate affairs (MCA) is close to releasing a draft report which will pave way for Indian companies to list their shares in overseas markets without listing in India first, two regulatory officials aware of the matter said.
The ministry will propose changes to Foreign Exchange Management Act (FEMA), Income Tax Act and Companies Act, the officials said on condition of anonymity. These will include amendments on taxing share transfers in India and adding enabling provisions under the Companies Act 2013 to allow listing of certain classes of securities on stock exchanges in permissible foreign jurisdictions. The proposal was cleared by the Union cabinet in March.
“FEMA would be amended to include a category of ‘permissible investors’ from select jurisdictions. These companies will also be governed by the rules of the jurisdiction in which they are listed,” said the first of the two persons, both of whom spoke on condition of anonymity.
Currently, a company incorporated in India can list on a foreign stock exchange only after it is listed in India. MakeMyTrip, which is listed on Nasdaq, had to incorporate itself in Mauritius to facilitate overseas listing without going public in India.
After the Union cabinet green-lighted the proposal in March, finance minister Nirmala Sitharaman reiterated the policy intent in May, on the last of a five-day-long series of announcements on the Rs20 trillion financial package to ease covid-19 related hardships.
“Overseas listing of shares will likely provide Indian companies with an alternate route to access capital and will also bring exposure to a broader and likely more global investor base. Such listing will facilitate comparisons with global listed peers and may lead to accurate benchmarking and higher valuations. Some of the successful start-ups in the technology and internet sector, including companies commonly referred as ‘unicorns’, which may still not be profitable, maybe able to access larger pools of capital from overseas markets in developed economies,” said Yash Ashar, partner and head of capital markets, Cyril Amarchand Mangaldas.
The idea for overseas listing was first floated by a committee set up by the Securities and Exchange Board of India (Sebi). In its recommendations in December 2018, it said listing Indian companies abroad would require simultaneous easing of provisions of taxation and foreign exchange management act (FEMA) among others.
FEMA, at present, does not contemplate a company incorporated in India and listed on a foreign stock exchange selling shares to a person resident outside India. Companies Act 2013 currently has rules for public offers and private placements of securities, is applicable to all companies incorporated in India, including companies that issue ADRs/GDRs as well as those which would propose to list their equity shares on foreign stock exchanges.
The ministry is also in favour of allowing listing in certain key permissible jurisdictions. “These jurisdictions will have strong anti-money laundering norms, know your client norms and would need to be compliant with foreign action task force (FATF),” the first/second person?? added.
A Sebi discussion paper had suggested 10 permissible jurisdictions which have strong anti-money laundering laws such as US, UK, China, Japan, Hong Kong, South Korea, Switzerland, France, Germany, Canada.