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Sebi proposes direct overseas listing of companies

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Mumbai: The markets regulator is considering allowing Indian companies to list directly on overseas exchanges, shaking off fears that it could lead to capital flight.

Currently, companies incorporated in India can list abroad through American Depository Receipts or Global Depository Receipts. Similarly, foreign companies wishing to trade on Indian exchanges need to float Indian Depository Receipts.

“Considering the evolution and internationalisation of the capital markets, it would be worthwhile to consider facilitating companies incorporated in India to directly list their equity share capital abroad and vice versa,” the Securities and Exchange Board of India (Sebi) said in a statement.

Sebi has formed a nine-member committee to examine the economic, legal, regulatory implications of the move and recommend a suitable framework. Prominent members of the committee are Deep Kalra, chairman and group CEO, MakeMyTrip; Cyril Shroff, managing partner, Amarchand Mangaldas; and Ranu Vohra, co-founder and managing director and CEO of Avendus Capital Pvt. Ltd.

So far, the regulator and the government have been reluctant to allow Indian companies to list abroad, on concerns that capital would leave the country, domestic primary market would be dampened, and that companies could go out of their regulatory ambit.

The liberalization would also help companies in addressing their expensive overseas debt.

“So far, the regulator had been looking at one aspect that India may lose capital, but now, there is a renewed thinking that is to showcase the talent of Indian companies overseas and attract good quality foreign companies to list in India,” said Sumit Agrawal, a former Sebi official and a securities lawyer.

“This would be a massive exercise as this would require India to approach reciprocal jurisdictions for a direct listing arrangement which will also require regulatory amendments in those jurisdictions. It will be beneficial if certain foreign stock exchanges have effective price discovery, flexible listing regulations, high liquidity coupled with low cost for doing an IPO,” said Yogesh Chande, partner, Shardul Amarchand Mangaldas.

In 2014, the government had allowed unlisted Indian companies to raise capital abroad without listing in India initially for a period of two years through an amendment to foreign direct investment (FDI) policy, but there were few takers for this scheme.

“It’s a good proposal in principle, as it has the potential to increase the fund-raising avenues for Indian companies. It can make the market more competitive as even foreign companies can raise capital directly on Indian exchanges and certain Indian companies that have listed their overseas entities to raise capital will have an alternative,” said Tejesh Chitlangi, partner, IC Legal.

“However, from a practical perspective, listing of equity by Indian companies directly on the overseas exchanges and vice versa will require changes not only in the applicable Indian regulatory regime but also the laws of the concerned overseas jurisdictions,” Chitlangi added.