admin India’s Finance Minister, Nirmala Sitharaman, unveiled a groundbreaking plan on Friday that could propel the country’s economy to new heights. She announced that domestic companies will soon have the opportunity to directly list their securities in specified jurisdictions on the international exchanges, a move that is expected to open up vast capital-access opportunities for businesses in India.
A Staged Process
Under the proposed stage-gate process, companies will initially list on the International Financial Services Centre (IFSC) at the Gift City in Gandhinagar. Following that, they will be permitted to list in seven or eight specified overseas jurisdictions, potentially attracting a wider investor base and higher valuations for Indian companies. “This is a major step forward and will also facilitate access to global capital and result in a better valuation for the Indian companies,” Sitharaman remarked, highlighting the positive implications of the decision.
Why Is It Important?
The move is seen as a way to allow Indian companies to tap into more growth capital and increase their competitiveness on the global stage. Currently, Indian companies are not allowed to directly list their equity shares on foreign stock exchanges without first listing in Mumbai. Similarly, foreign companies cannot directly list their equity shares on Indian stock exchanges.
Amisha Vora, Chairperson & MD of Prabhudas Lilladher, welcomed the development, noting that Indian businesses may receive better valuations and attract a larger investor base in foreign jurisdictions. With the Indian economy on the rise, the move has the potential to boost the Indian startup industry as well.
To facilitate the process, a senior finance ministry official revealed that the rules for direct overseas listing would be notified in the coming weeks. The government aims to provide domestic companies with an alternative avenue to access foreign capital markets.
In 2018, a Securities and Exchange Board of India (SEBI) panel recommended that domestic firms be allowed to list only in jurisdictions with strong anti-money laundering frameworks and a treaty obligation to share information during investigations. The suggested jurisdictions included the US, the UK, Japan, South Korea, and Hong Kong.
Another Milestone
In addition to the direct overseas listing plan, the launch of a Limited Purpose Clearing Corporation (LPCC) and the AMC Repo Clearing Limited (ARCL) for corporate bond repo transactions is expected to be a significant institutional milestone for the bond market. The LPCC will focus on creating a market for short-term borrowings against corporate bonds, offering market makers cost-effective funding options and investors in corporate bonds a means to meet short-term liquidity needs without selling their assets.
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