In a significant move aimed at enhancing India's global financial connectivity, the Government of India has recently introduced amendments to regulations facilitating the direct listing of securities by Indian companies on international exchanges. The amendments, made by the Department of Economic Affairs (“DEA”) and the Ministry of Corporate Affairs (“MCA”), provide a framework for the issuance and listing of equity shares on international exchanges, particularly focusing on the India International Exchange and NSE India International Exchange within the GIFT-IFSC.
Background
The groundwork for direct listing was laid with the Companies (Amendment) Act, 2020, which amended Section 23 of the Companies Act, 2013. This amendment allowed specific classes of securities for defined categories of public companies incorporated in India to be directly listed on approved stock exchanges in permissible foreign jurisdictions. The recent amendments build upon this foundation, specifically designating the India International Exchange and NSE India International Exchange within the GIFT-IFSC as permissible stock exchanges for such listings.
The Government's decision to designate the India International Exchange and NSE India International Exchange as permissible stock exchanges aligns with the regulatory oversight of the International Financial Services Centres Authority (“IFSCA”). The GIFT-IFSC, India's first international financial services center, connects the Indian economy with global financial opportunities, allowing for the seamless flow of global capital into India.
Amendments and Regulatory Framework
The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, have been amended to enable the direct listing of equity shares by Indian companies on international exchanges. Simultaneously, the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024, have been notified by the MCA. These rules lay down conditions for unlisted and listed public companies seeking to issue equity shares for listing on stock exchanges in permissible jurisdictions.
The regulatory framework outlines eligibility criteria for public Indian companies and existing shareholders, along with obligations regarding compliance with relevant laws, voting rights, and pricing of equity shares. Notably, certain companies, such as Nidhi companies and those in
default to banks or public financial institutions, are deemed ineligible for such listings. The amendments also consider companies undergoing resolution or winding-up proceedings as ineligible.
Benefits and Impact
The initiative to enable direct listings at GIFT-IFSC is anticipated to reshape the Indian capital market landscape. According to the Ministry of Finance, this move offers Indian companies, particularly start-ups and those in technology sectors, an alternative avenue to access global capital beyond domestic exchanges. The government expects this development to lead to better valuation of Indian companies in line with global standards, boost foreign investment flows, unlock growth opportunities, and broaden the investor base.
Further, the flexibility provided to public Indian companies to access both domestic and international markets for capital raising is seen as a strategic advantage. Companies can raise capital in Indian Rupees domestically and in foreign currency from global investors at the IFSC. This is particularly beneficial for Indian companies with global aspirations and those looking to expand their presence in international markets. Also, it envisions new investment opportunities, diversification of financial products, and enhanced liquidity as a result of this policy initiative.
Furthermore, the Securities and Exchange Board of India (“SEBI”) is actively involved in the process, with plans to issue operational guidelines for listed public Indian companies. The guidelines will likely provide a comprehensive framework for compliance and operations in alignment with the amended regulations.
Our Take
The government's move to enable direct listing of Indian companies on international exchanges reflects a strategic approach to bolstering the country's global financial connectivity. The amendments provide a regulatory framework that balances eligibility criteria, compliance obligations, and the potential benefits for Indian companies. As SEBI finalizes operational guidelines, it is expected that the initiative will open new avenues for Indian businesses, foster global investment, and contribute to the continued development of the GIFT-IFSC as a prominent international financial hub. This regulatory evolution marks a pivotal moment for India's capital markets, positioning them for increased competitiveness and attractiveness on the global
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