SEBI Panel Pitches For Direct Listing Of Indian Companies Overseas

A panel set up by the market regulator suggested allowing Indian companies to directly list on overseas stock exchanges, a move that will pave the way for foreign investors controlling Indian startups to exit or unlock value.

The committee, constituted by the Securities and Exchange Board of India in June, recommended that Indian companies should be allowed to list in 10 countries without first listing in India, according to the report published on SEBI's website. As of now, locally incorporated companies can list overseas only after going public in India first.

The 10 countries and their exchanges are:

• U.S.: NASDAQ, NYSE
• China: Shanghai Stock Exchange, Shenzhen Stock Exchange
• Japan: Tokyo Stock Exchange, Osaka Securities Exchange
• South Korea: Korea Exchange Inc.
• U.K.: London Stock Exchange
• Hong Kong: Hong Kong Stock Exchange
• France: Euronext Paris
• Germany: Frankfurt Stock Exchange
• Canada: Toronto Stock Exchange
• Switzerland: SIX Swiss Exchange

If accepted by the Reserve Bank of India, the Finance Ministry and the Ministry of Corporate Affairs, the proposal would make it easier for overseas investors that hold majority stakes in Indian unicorns—startups valued more than $1 billion—to sell shares. Such companies include Paytm and Ola, among others.

India may have close to 100-odd such companies which will have value in excess of $100 million, according to Ranu Vohra, co-founder and chief executive officer of Avendus Capital Pvt. Ltd., who headed the SEBI panel. As many as 91 Chinese companies listed overseas between 2013 and 2018 and raised in excess of $40 billion, he told BloombergQuint. “It's time that the Indian companies in newer emerging areas like technology, digital, internet with global aspirations and scale, and seeking access to low-cost capital are able to list overseas in the permissible jurisdictions.”

The countries have been chosen thoughtfully and have high-quality capital infrastructure, know-your-customer requirements and also investors who understand the new sectors, Vohra said. Listing of Indian shares on a foreign stock exchange, according to the panel, will be governed by the framework of that country and India's Companies Act.

SEBI has taken the initiative with a strong political will behind it, said Cyril Shroff, managing partner of law firm Cyril Amarchand Mangaldas and also a member of the SEBI-appointed panel. This move allows capital markets to be more aligned with global markets, he said. “We believe there is strong support from the system for changing the company law, foreign exchange regulation or taxes. All the other agencies will look at this well.”

The committee, in its recommendations, said the RBI should come out with the regulatory framework for allowing an overseas investor to buy shares of a company incorporated in India and listed abroad. That would be similar to the RBI rules for listing of masala or rupee-denominated bonds issued overseas, it said. So, according to the committee, it will require amendments to the Foreign Exchange Management Act, 1999 and the Companies Act, 2013.

Other Proposals

• Prohibit entities incorporated in certain jurisdictions from investing in the shares of these companies.
• Requirement of beneficial ownership can be met by complying with the prescribed regulations in the overseas jurisdiction the company would be listing its shares.
• Panel sought clarity from the Department of Revenue on the issue of tax.
• The Ministry of Corporate Affairs should issue a circular allowing listing of equity shares of companies incorporated in India on foreign stock exchanges.

Shroff, however, said it will be hard to predict the timeline for the proposal to be accepted. “If it was not for an election next year, if there was a normal budget next year, I would have said three to five months,” he said. “But taking into account the uncertainty that would arise from politics, I would give it a little longer.”

Watch the full conversation here: