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The Indian government has made history by allowing a limited number of Indian companies to list directly on specific international stock exchanges. This strategic move represents a critical turning point in India’s financial development as it attempts to give these enterprises access to international capital markets and increase capital outflows.
Direct Listing vs. Initial Public Offers (IPO)
| IPO | Direct Listing | |
| Share Issuance | New shares are created and sold. | No new shares are created or sold. |
| Underwriters | Typically involves underwriters. | No underwriters involved. |
| Price Determination | Price determined through negotiations. | Market-driven pricing at launch. |
| Lock-Up Period | Common for insiders post-IPO. | Typically no lockup period. |
| Regulatory Compliance | Extensive financial disclosures. | Regulatory requirements met. |
| Capital Raising | Primary goal is to raise capital. | Provides liquidity to shareholders. |
Implementation of Companies (Amendment) Act, 2020
Government Notification: The Companies (Amendment) Act, 2020’s provisions were recently placed into effect by a notification released by the Ministry of Corporate Affairs (MCA).
The International Financial Services Centre (IFSC) in Ahmedabad is the primary facilitator for the direct listing of equity shares by domestic companies, both listed and unlisted.
Encouraging Clause: Section 5 gives the federal government the right to allow certain categories of publicly traded firms to list particular categories of securities on international stock markets, such as GIFT IFSC, Ahmedabad.
Streamlined Procedures: In certain cases, the government may choose to waive the need for a prospectus, share capital, beneficial ownership, and dividend distribution.
Current Listing Mechanism for Foreign Bourses
Depository Receipts: In the past, American Depository Receipts (ADR) or Global Depository Receipts (GDR) were the primary means of documentation used by Indian companies seeking to list overseas. Indian custodians provided these receipts to overseas investors.
Utilization in the Past: 109 firms raised Rs 51,847.72 crore through the ADR/GDR method between 2008 and 2018. But no Indian business explored international listings after 2018.
Advantages of Direct Foreign Listing
Enhanced financing: By providing better valuations and exposure to international currencies like the US dollar, direct foreign listing enables domestic companies to access foreign markets for financing.
Startup and Unicorn Growth: By offering an extra channel for funding and increased international exposure, this program may be very helpful to startups and unicorns.
Increasing Forex Reserves: By increasing India’s foreign exchange reserves, the action supports the country’s economic stability.
Simplified Accounting: Indian Accounting Standards (IndAS) lessen the need for elaborate and expensive accounting preparations in accordance with US Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) by closely aligning with global accounting rules.
Challenges in Direct Foreign Listing
Valuation discrepancies: One major concern is whether international investors will value Indian markets similarly. For Indian enterprises, evaluating the business benefits of international listings will be essential. •
Clarity and Specifics: More in-depth details are necessary. Clarity on acceptable international stock exchanges and countries, listed securities categories, appropriate firm classifications, and exemptions from procedural compliance are some examples of this.
