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Govt may allow direct overseas listing of Indian cos

Govt may allow direct overseas listing of Indian cos
NEW DELHI: The government is expected to allow direct listing of Indian companies abroad as part of a plan to allow them access a larger pool of capital and enable the move towards fuller capital account convertibility.

While detailed discussions on the proposal have taken place, a formal decision is awaited, sources told TOI, adding that the idea is meant to help Indian start-ups and unicorns access a larger pool of investors to raise capital and at the same time allow exits by existing investors. The government is hoping that the move along with the decision to reduce the corporate tax rate to 15% for new manufacturing companies will help Indian companies go global and also ensure that they do not register in foreign locations such as Singapore.

Currently, Indian companies go for the depository receipts route to tap investors globally but that window has become less attractive in recent years, prompting the government and the Securities and Exchange Board of India to eye a direct listing window. Depository receipts are securities listed overseas against shares of listed domestic companies.

Flap listed graphic

An internal assessment suggests that 12-15 companies may opt for direct listing over the next three-four years, which will be a small fraction of the nearly 300-odd Chinese companies that have raised funds by listing abroad. At least 15 Indian companies have tapped the ADR and GDR route, including Infosys, ICICI Bank, HDFC Bank and Reliance Industries. Indian residents will, however, have to trade on Indian exchanges.

Once a formal decision is taken, the government will move to amend several laws and regulations, including the Foreign Exchange Management Act (Fema), the Companies Act and Sebi regulations. Over a year ago, a committee set up by the market regulator had suggested changes to the tax laws as well to ensure that income earned from transfer of equity shares of an unlisted Indian company listed on a foreign stock exchange does not face capital gains tax here.

Sources said the government is planning to allow listing only in select jurisdictions, which may include the US, the UK, China, Japan and Hong Kong which are part of Financial Action Task Force, the global anti-money laundering group, and International Organisation of Securities Commissions (IOSCO).

“It will allow Indian companies to tap a new pool of investors, other than Indian investors or foreign portfolio investors, many of whom may not have come to India,” said Edelweiss Group chairman Rashesh Shah. Several investment funds do not invest in India due to their internal criteria.

“Such listings also enable companies to diversify their capital-raising activities rather than being reliant only on their domestic market. In addition, Indian start-up or emerging-growth companies, for example, will be able to access capital from investors overseas that may be more receptive to their securities than Indian investors, who have typically focused on companies with proven track records of profitability and growth, and have generally exhibited less appetite for start-up or emerging-growth companies,” the expert committee set up by Sebi had said, adding that the valuations may also be better.

In the past, there have been concerns over such fund raising resulting in a rush of capital into the country, and impacting exchange rates, but sources said the Reserve Bank of India and the finance ministry will work to ensure that there is no volatility.

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