Suspicious jurisdictions will remain off-limits to Indian companies that want to list their shares abroad first, a person aware of the plan said. Public limited companies incorporated in India will be allowed foreign direct listings only in clearly defined “permissible jurisdictions,” the person said on condition of anonymity, referring to the government’s objective to prevent potential abuse of this avenue for tax evasion and money laundering, even while easing capitalization opportunities for companies.
On 30 October, the ministry of corporate affairs (MCA) announced a provision in the Companies Act, 2020, allowing Indian companies to list abroad before a domestic initial public offer (IPO). However, the final rules will be announced by the Department of Economic Affairs (DEA), which will define the class of public limited companies eligible for this facility, and the markets they could tap to raise capital, the person said, adding that discussions are on in the government.
“Companies will be able to use this facility from a possible date that will be specified in the DEA notification. It is expected very soon,” said the person. MCA is also expected to present some rules on the requirements for companies opting for this facility.
India’s caution on foreign IPOs is consistent with its recent stance on fund inflows into unlisted companies. In offering relief to certain non-resident investors from the dreaded angel tax in May, the government specifically barred private and non-banking entities from Singapore, Mauritius and the Netherlands, even though these are among India’s top foreign direct investment (FDI) sources. .
The opening of the foreign listing window is expected to be done in a measured manner as the robustness of the regulatory ecosystem in those jurisdictions becomes crucial to ensure capital flows into Indian companies in a transparent manner. The Cayman Islands, one of the top 10 FDI sources for India, is likely to be one of the jurisdictions where some restrictions will be placed when this facility comes into effect, the person cited above said.
The Financial Action Task Force (FATF), the global watchdog and standard setter on money laundering and terrorist financing, says on its website that the Cayman Islands has made significant progress in improving its anti-money laundering and countering the financing of terrorism (AML). /CFT) regime to fulfill the commitments in its action plan by addressing the gaps identified in 2021. The country is no longer subject to the increased monitoring process of the FATF.
Experts said transparency will be a key factor governing direct overseas listings of Indian businesses. “It is possible that the Indian authorities may look at allowing this in jurisdictions that are FATF compliant and have sufficient transparency standards. Having said that, the companies looking to list abroad may also 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.
Allowing Indian public limited companies to list their securities in foreign markets will enable them to access greater capital and a diverse set of investors, Sehgal said. “This will help deepen the Indian capital markets, as foreign markets will also contribute to price discovery in Indian markets. It will also require higher governance and adherence to local and foreign regulations by the companies and may strengthen overall corporate governance,” Sehgal said.
Apart from changes in corporate laws, changes may also be required in other laws such as the Securities and Exchange Board of India, the Securities Contract (Regulation) Act and the Income Tax Act, so that these remain in sync with the overall objectives. , said Sehgal.
Emails sent to spokespeople for the finance ministry and the foreign ministry on Friday seeking comment for the story remained unanswered at the time of publication. A spokesman for the Cayman Islands Ministry of Financial Services and Trade sought more time to offer comment in response to a question submitted on Friday.
Milestone Warning!Livemint tops charts as the fastest growing news site in the world 🌏 Click here to know more
Catch all Business News, Market News, News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More or less
Updated: 20 Nov 2023, 00:19 IST