After much anticipation, the “Expert Committee for Listing of Equity Shares of Companies incorporated in India on Foreign Stock Exchanges and of Companies incorporated outside India on Indian Stock Exchanges” constituted by SEBI, published its report on December 04, 2018, (“Report”). The Committee was tasked with the responsibility inter alia to recommend a legal framework for implementing direct listing of equity shares of Indian companies on foreign exchanges and vice versa.
The Committee has inter alia identified policy issues in the existing legal framework in India, recommended modifications to facilitate such listing and provided a list of 10 foreign jurisdictions that may be suitable for direct listing of the equity shares of Indian companies. However, it is to be noted that the Report did not recommend allowing Indian companies to list their equity shares directly on stock exchanges set up within the International Financial Services Centre (“IFSC”) in Gujarat International Financial Tec-City SEZ (“GIFT City”).
In Chapter 2 of the Report, the Committee has laid down the principles/criteria for identifying “Permissible Jurisdictions” and foreign stock exchanges within such jurisdictions (such as United Kingdom – London Stock Exchange and United States of America – NASDAQ) for listing of equity shares of Indian companies. These criteria include a country being a member of the Board of International Organization of Securities Commissions (“IOSCO”) and the Financial Action Task Force (“FATF”).
IFSC in GIFT City is situated within the territory of India which is a member of IOSCO and FATF and the other conditions laid down in Chapter 2 of the Report are sufficiently satisfied by IFSC. Further, stock exchanges in IFSC, such as the India International Exchange (IFSC) Limited (“India INX”) and the NSE International Exchange (“NSE IFSC”) are recognised as overseas exchanges where companies incorporated in India can list their debt securities such as masala bonds and foreign currency bonds to raise funds. Therefore, to allow Indian companies to diversify their capital raising options, to find better valuation and to provide them with cost-effective alternatives to raise capital, it may be appropriate for the Central Government to explore the possibility to permit companies incorporated in India to list directly on India INX or NSE IFSC in compliance with all applicable regulatory requirements.
Currently, Clause 7 of the SEBI (IFSC) Guidelines, 2015 (“IFSC Guidelines”), which provides for the types of securities that can be dealt with on the stock exchanges operating within IFSC (“Permissible Securities”) does not include equity shares of Indian companies. Therefore, for the fructification of the aforesaid proposal, SEBI could exercise its powers under Section 11 (1) of the SEBI Act, 1992 and include “equity shares of a company incorporated in India” within the list of Permissible Securities under Clause 7 of IFSC Guidelines. Thereafter, the Central Government, pursuant to discussions with relevant regulators could explore the option to identify IFSC in GIFT City, as a Permissible Jurisdictions and international exchanges established within the IFSC could also be included in the list of designated foreign stock exchanges for listing of equity shares of companies incorporated in India.