There will be no limits on dubious jurisdictions for Indian companies seeking to list their shares abroad first, said a person familiar with the plan. Public limited companies incorporated in India will not be allowed to list directly overseas except in “clearly defined permissible jurisdictions”, the person said on condition of anonymity, citing the government’s objective to prevent mis- the potential use of this route for tax evasion and money laundering, even while facilitating capital raising possibilities for companies.
On October 30, the Ministry of Corporate Affairs notified a provision in the Companies Act, 2020, which allows Indian businesses to list abroad before a domestic initial public offering (IPO). However, the Department of Economic Affairs (DEA) will announce the final rules, which will specify the class of public limited companies eligible for this facility, and the markets they could use to raise capital, said the person, adding that there is discussion. on in the government.
“Companies will be able to use this facility from a prospective date specified in the DEA notification. It is expected very soon,” the person said. MCA is also expected to issue certain rules regarding the requirements for companies opting for this facility.
India’s caution on foreign IPOs is in line with its recent stance on fund flows into unlisted companies. In offering relief to certain non-resident investors from the angel tax in May, the government specifically kept out private and non-banking entities from Singapore, Mauritius and the Netherlands, even though these are among the main sources of foreign direct investment ( FDI) in India. .
The window for foreign listing is expected to be opened in a measured manner as the robustness of the regulatory ecosystem in those jurisdictions becomes critical to ensure capital flows into Indian companies in a transparent manner. The Cayman Islands, one of the top 10 sources of FDI for India, is likely to be one of the jurisdictions where certain restrictions will be imposed when this facility comes into effect, the person quoted above said.
The Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog and standards setter, says on its website that the Cayman Islands has made significant progress in improving its anti-money laundering and against the financing of terrorism (AML). /CFT) to fulfill the commitments in its action plan to address the deficiencies identified in 2021. The country is no longer subject to the FATF’s enhanced monitoring process.
Experts said transparency will be a key factor governing foreign direct listings of Indian enterprises. “Indian authorities may seek to allow this in FATF-compliant jurisdictions with adequate transparency norms. Having said that, companies looking to list overseas may prefer similar jurisdictions. Geopolitical and foreign trade relations are also expected to play a role,” explained Sandeep Sehgal, partner, tax, at AKM Global, a tax and consulting firm.
Sehgal said that allowing Indian public limited companies to list their securities on overseas markets will enable them to access a larger pool of capital and a diverse set of investors. “This will help deepen the Indian capital markets as overseas markets will also contribute to price discovery in Indian markets. It will also call for higher governance and compliance of the companies with local and foreign regulations and may further strengthen the overall corporate governance,” Sehgal said.
In addition to changes in corporate laws, other laws such as the Securities and Exchange Board of India Act, the Securities Contracts (Regulation) Act and the Income Tax Act may also require changes to remain this is in line with the overall objectives. , said Sehgal.
Emails sent to spokespeople for the Ministry of Finance and the Ministry of Foreign Affairs on Friday seeking comment on the story went unanswered at the time of publication. A spokesperson for the Cayman Islands Ministry of Financial Services and Commerce sought more time to offer comment in response to a question sent on Friday.
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Updated: 20 November 2023, 12:19 AM IST
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