The government has allowed companies registered in India to raise capital on overseas stock exchanges without prior or subsequent listing in India, in what is seen as one in a series of steps to boost capital inflows into the country. The government hopes to fully fund its current account deficit, projected at $70 billion for FY14.
In a statement on Friday, the finance ministry said this scheme will be implemented on a pilot basis for a period of two years from the date of notification and that, after this initial two-year period, the impact of this arrangement will be reviewed. The decision to allow unlisted companies to list abroad is subject to certain conditions, including listing only on exchanges in countries compliant with the International Organization of Securities Commissions (IOSCO) and the Financial Action Task Force (FATF), and full compliance with the foreign direct investment policy for the sector concerned.
This would mean that unlisted Indian companies can now list on the Nasdaq, New York Stock Exchange, London Stock Exchange and Singapore Exchange, among others.
The capital raised abroad through such a listing can be used to retire outstanding foreign debt or for operations abroad. In case the funds are not used to repay debt or operations abroad, the companies will remit the money back to India within 15 days and such money shall be parked only in authorised dealer category banks recognised by the RBI, the ministry said.
FE was the first to report (in July) of North Block’s plans of allowing unlisted companies to list abroad. Analysts say it will be a beneficial move as raising capital in domestic markets is getting difficult for a number of reasons. However, they warn that the success of such listings depends on the global economic sentiment, which is rather poor after the US Federal Reserve’s contrasting comments on the tapering of stimulus over the past few months.
Sources told FE that some of the other steps the government is considering include allowing companies that don’t qualify to have their American depository receipts (ADRs) listed on a US exchange to trade the ADRs over the counter, and letting foreign investors directly buy large blocks of shares in Indian firms through stock exchanges anytime during the trading hours.
