Direct Listing Scheme: Indian Companies on Global Exchanges in GIFT City

Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges of GIFT IFSC: Accessing Global Capital and Growth for Indian Companies

The Indian government has introduced a new framework for Indian companies, both listed and unlisted(public), to directly list their shares on international stock exchanges. This “Direct Listing Scheme” allows companies to access a wider pool of investors and potentially raise more capital. Currently, only two exchanges in India’s GIFT City are permitted for this purpose, but the framework is expected to expand in the future. Unlisted companies can already start using the scheme, while guidelines for listed companies are still being developed.

Key Benefits:

• Global Capital Access: Start-ups and innovative companies can tap into a vast pool of international investors in GIFT City, beyond the limitations of domestic exchanges.
• Fairer Valuations: The global exposure allows for valuations based on international standards of scale and performance, potentially leading to higher price discovery for Indian companies.
• Increased Foreign Investment: The scheme attracts foreign capital inflows, boosting overall investment in Indian businesses.
• Unlocking Growth: Access to global capital provides new avenues for funding ambitious expansion plans and unlocking unprecedented growth opportunities.
• Diversified Investor Base: Companies broaden their investor base, reducing dependence on any single market or investor group.
• Dual-Market Flexibility: Indian companies can choose to raise capital in INR domestically or in foreign currency from global investors via IFSC, offering greater financial flexibility.

Implications:

• This scheme particularly benefits Indian companies with global ambitions and aspirations to expand internationally.
• It positions India as a more attractive investment destination for technology and sunrise sectors.

Followings are the key points of this direct listing scheme:

1. New Rules for Direct Listing of Indian Companies on International Exchanges:

• The Indian government has introduced new rules that allow certain Indian companies to directly list their equity shares on international stock exchanges.
• This is done through a scheme called the “Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme”.

2. Key Eligibility Criteria:

• The company must be a public Indian company (listed or unlisted) (Private company is ineligible).
• It must not be debarred from accessing the capital market by the appropriate regulator.
• Its promoters, directors, and major shareholders must not be wilful defaulters or fugitive economic offenders.
• The company must comply with extant laws relating to issuance of equity shares, including the Securities Contracts (Regulation) Act, 1956, the Companies Act, 2013, and others.

3. Permissible Jurisdictions, Exchanges and Holders:

• Currently, the only permissible jurisdiction is the International Financial Services Centre (IFSC) in India.
• Within the IFSC, the permitted stock exchanges are the India International Exchange (India INX) and the NSE International Exchange (NSE IFSC).
• Non-Resident Indians (NRIs): Permitted to buy and sell shares of Indian companies listed on international exchanges under the Direct Listing Scheme.
• Indian Residents: Not allowed to directly purchase or sell shares of Indian companies listed on international exchanges through the Scheme.

4. Key Provisions of the Scheme:

• Companies can issue new equity shares or offer existing shares for listing on permissible exchanges.
• Pricing of shares is subject to certain regulations.
• Voting rights on listed shares are exercised by permissible holders (foreign investors).
• Companies must comply with certain obligations, such as ensuring compliance with sectoral caps on foreign investment.

5. Additional Rules for Unlisted Companies:

• Unlisted companies must file a prospectus in e-Form LEAP-1 within 7 days of filing it with the permitted exchange.
• They must comply with Indian Accounting Standards in financial statements.

6. Other Important Points:

• The scheme is subject to approval from the Reserve Bank of India for matters related to foreign exchange.
• The Securities and Exchange Board of India (SEBI) may issue additional regulations for listed companies.

• The direct listing of Indian companies’ shares on international exchanges within GIFT City will follow regulations set by the International Financial Services Centres Authority (IFSCA) Act of 2019 and its associated rules. Importantly, the IFSCA (Issuance and Listing of Securities) Regulations, 2021 (ILS Regulations) establish the framework for these listings, covering everything from initial listings to ongoing disclosure and reporting requirements.
• The new Direct Listing Scheme for Indian companies on international exchanges currently welcomes only unlisted public companies. While listed companies are also technically eligible, the Securities and Exchange Board of India (SEBI) is still finalizing the operational guidelines for their participation. This means unlisted companies have the first-mover advantage and can access global capital markets through direct listing on international exchanges.

Overall, the Direct Listing Scheme is a significant step forward for Indian capital markets, and it could provide exciting new opportunities for Indian companies to grow and thrive.