In the face of a widening current account deficit and a weakened currency, the ministry of finance finally relaxed rules to permit unlisted Indian companies to raise capital by listing directly on overseas stock exchanges. Going back in the history of this legislation, companies in the pre-2005 era could list overseas directly even if they were not listed in India, and this was used by companies like Rediff and Sify. In 2005, a rule was introduced whereby Indian companies could approach international capital markets only if they were already listed in India or did so in parallel to the overseas listing, which begs the question: if a company can successfully list in India in the first place, would it be tempted to approach overseas markets at all? The other aspect was that listed Indian companies were permitted to raise overseas capital using the depository receipts route (GDRs or ADRs) and not a full equity float.
The Indian equity markets have been subdued over the past few years and investor response to most IPOs has been tepid. In fact, a sharply declining trend in domestic IPOs is visible—while a total of R37,500 crore was raised in 64 IPOs in 2010, 2013 till date has witnessed only 24 companies raising less than
R1,500 crore. Given this background, while Indian companies across sectors have been struggling to raise fresh capital, private equity investors on the other hand, were anxiously awaiting an exit. Promoters and investors alike were eagerly awaiting this relaxation—let’s see if everyone’s prayers have been answered.
The notification is pretty straight forward—it permits unlisted Indian companies to list in overseas countries compliant with IOSCO/ FATF or where Sebi has bilateral agreements, which ensures applicability of high governance and control standards. Most of the key global markets such as the US, Luxembourg, Singapore, Netherlands and London are covered by these bodies. However, the government is permitting this window only for two years, which could mean that it’s a temporary relaxation and not a structural change for the long term.
The notification requires the issuer company to comply with the FDI policy in force during any overseas listing, which is logical. However, one needs to see whether there is a ceiling on the proportion of foreign investment raised via this route (akin to the current regulations governing GDR issues) or if it will be a free window.
The notification casts a requirement on the company to