Allowing firms to list overseas may help raise funds
Indian entities have used offshore routes like Mauritius to list on overseas exchanges like NASDAQ and NYSE by creating parent companies or subsidiaries in such tax-friendly jurisdictions.Updated: May 18, 2020 06:03 IST
The government’s policy intent to allow Indian companies to list overseas without simultaneous India listing can open up avenues for tech and other companies to raise funds but would be a non-starter without the necessary regulatory clarifications, legal experts said.
Historically, due to the existing legal framework, Indian entities have used offshore routes like Mauritius to list on overseas exchanges like NASDAQ and NYSE by creating parent companies or subsidiaries in such tax-friendly jurisdictions.
Apart from that, Indian entities are also allowed access to foreign capital through the American Depository Receipts (ADR) or Global Depository Receipts (GDR) route.
“While tech firms would be the key beneficiaries, some others with significant US exposure, in terms of customers or employees such as IT services, healthcare, or global business models in commodities, chemicals could look at foreign listings,” said Anuj Kapoor, managing director and head of investment banking at UBS India.
The cabinet approved this proposal in March. The idea’s genesis is a Securities and Exchange Board of India (Sebi) panel recommendation from December 2018. The panel had suggested listing Indian companies abroad would require simultaneous easing of provisions of taxation and Foreign Exchange Management Act (FEMA), among others.
FEMA regulations need to be tweaked to allow issuance of shares to persons resident outside India and receipt and retention of amounts received in foreign currency accounts overseas.
Further, tax laws both relating to capital gains arising on transfer of equity shares and also the rules relating to valuation of shares require changes.
“The announcement so far looks to be more of policy intent till the time the associated regulatory amendments and clarifications are not announced in areas including FEMA regulations and tax laws,” said Sai Venkateshwaran, partner and head, CFO Advisory, KPMG in India.
Kapoor of UBS also said the government and regulators will need to do substantial work on fine-tuning the ecosystem.
The other big hurdle is lack of a fully convertible rupee. The RBI has allowed foreign exchange-settled rupee derivatives trading only at the International Financial Services Centre at Gift City in Gujarat.