With the newly enacted Companies (Amendment) Bill, 2020, it is now possible to directly list the equity shares of Indian companies on foreign exchanges
India witnessed a surge in capital market transactions, mainly Initial public offerings (IPOs). However, is our capital market regulations aligned with international regulations? India is making rapid changes to bring in global best practices and regulations.
Up till 2020, the legal framework in India facilitated listing of securities of Indian companies on international exchanges only by the way of Depository Receipts. Debt securities could be listed on international exchanges in the form of ‘Masala bonds’. With the newly enacted Companies (Amendment) Bill, 2020, it is now possible to directly list the equity shares of Indian companies on foreign exchanges. However, the related provisions including the eligibility of companies, permissible jurisdiction, tax structure, etc. are yet to be notified. RBI, SEBI, MCA, and CBDT have to co-ordinate to make necessary amendments to the existing regulations to seamlessly allow the direct listing at overseas exchanges.
There is a strong positive relationship between capital market development and economic growth. Health and competence of an economy gets fuelled by well-developed and easy-going capital market policies. Overseas listing is expected to provide better valuation, increased pool of investors and competitiveness for domestic companies, and thus will have a considerable impact on the Indian economy.
The amendments to the Companies Act also suggest giving companies listing their securities on foreign exchanges an exemption the requirements under Indian listing regulations. This means, unlisted Indian companies can list their securities on foreign exchanges without the need to list in India. In August, SEBI resolved multiple changes in the regulatory framework of our capital market. Of these, the most notable change included a reduction in the minimum lock-in period that has to be observed by a promoter following an IPO from 3 years to 18 months and approving a shift from the concept of ‘promoter’ to ‘person in control’.
This is in line with the international practices because the concept of a promoter is unique to India; most global capital market regulators don’t have a system of promoters, instead they focus on control. Another area of discussion is around the Special Purpose Acquisition Company, to ease the listing of start-ups, which are typically not able to satisfy the profitability criteria for a traditional public listing through an IPO.
The SPAC IPO route is an alternative platform to a traditional IPO in the US market. The concept of SPAC has been borrowed by other countries and is still in its nascent stages here. After gaining popularity in the US, the frenzy of SPACs gained traction in Asia. Given Asia’s large and mature IPO market, regulators are now considering allowing SPAC listing in various Asian countries. As the Indian market has been exhibiting openness towards new ideas and products, SPACs could well be right there. However, Indian regulators need to introduce separate regulations for SPAC IPOs as SPACs currently cannot meet the rigid eligibility norms and other regulatory requirements, in India. In early 2021, SEBI eased the eligibility and listing criteria on the so-called Innovators Growth Platform (IGP), a separate exchange venue for new-age start-ups. However, worldwide the regulations for main board listing, especially for start-ups, are easier than in India.