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Direct foreign listing will have no-go areas too


Suspicious jurisdictions will remain out of bounds for Indian companies looking to first list their shares abroad, a person aware of the plan said. Public limited companies incorporated in India will be allowed foreign direct listing only in clearly defined “permissible jurisdictions”, the person said on condition of anonymity, hinting at the government’s objective to prevent potential misuse of this route for tax-dodging and money-laundering, even while easing capital-raising possibilities for companies.

On 30 October, the ministry of corporate affairs (MCA) notified a provision in the Companies Act, 2020, allowing Indian businesses to list abroad before a domestic initial public offering (IPO). However, the final rules will be notified by the Department of Economic Affairs (DEA), which will specify the class of public limited companies eligible for this facility, and the markets they could tap for raising capital, the person said, adding that discussions are on in the government.

“Companies will be able to make use of this facility from a prospective date that will be specified in the DEA notification. It is expected very soon,” the person said. MCA is also expected to bring out certain rules regarding the requirements for companies choosing this facility.

India’s caution on foreign IPOs aligns with its recent stance on fund flows into unlisted companies. While offering relief to certain non-resident investors from the dreaded angel tax in May, the government specifically kept out private and non-banking entities from Singapore, Mauritius and the Netherlands, even though these are among India’s top foreign direct investment (FDI) sources.

The opening-up of the foreign listing window is expected to be done in a measured way as the robustness of the regulatory ecosystem in those jurisdictions becomes crucial in ensuring capital flows into Indian companies in a transparent manner. The Cayman Islands, one of the top 10 FDI sources for India, is likely to be one of the jurisdictions where some restrictions will be placed when this facility takes effect, the person quoted above said.

The Financial Action Task Force (FATF), the global money-laundering and terror finance watchdog and standard-setter, says on its website that the Cayman Islands has made significant progress in improving its anti-money laundering and countering the financing of terrorism (AML/CFT) regime to meet the commitments in its action plan addressing the deficiencies identified in 2021. The country is no longer subject to the FATF’s increased monitoring process.

Experts said transparency will be a key factor governing direct foreign listings of Indian enterprises. “It is possible that the Indian authorities may look to allow this in jurisdictions that are FATF-compliant and have sufficient transparency norms. Having said that, the companies looking to list overseas may also prefer similar jurisdictions. Geopolitical and foreign trade relations are also expected to play a role,” explained Sandeep Sehgal, partner, tax, at AKM Global, a tax and consulting firm.

Sehgal said allowing Indian public limited companies to list their securities in overseas markets will enable them to access a bigger pool of capital and a diverse set of investors. “This will help deepen the Indian capital markets as overseas markets will also contribute to price discovery in Indian markets. It will also call for higher governance and adherence to both local and foreign regulations by the companies and may further strengthen the overall corporate governance,” said Sehgal.

In addition to changes in corporate laws, changes may also be needed in other laws such as the Securities and Exchange Board of India Act, the Securities Contract (Regulation) Act and the Income Tax Act, so that these remain in sync with the overall objectives, Sehgal said.

Emails sent to the spokespersons for the finance ministry and the external affairs ministry on Friday seeking comments for the story remained unanswered at the time of publishing. A spokesperson for the Ministry of Financial Services and Commerce of the Cayman Islands sought more time for offering a comment in response to a query sent on Friday.


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Updated: 20 Nov 2023, 12:19 AM IST

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