On January 24, 2024, the Indian government gave the green light for Indian public companies to directly list their securities on international exchanges within the GIFT International Financial Services Centre (GIFT-IFSC). The India International Exchange and NSE International Exchange, both located in GIFT-IFSC, are now authorized venues for such listings. This decision marks a significant shift from previous restrictions that prevented Indian companies from issuing or listing equity shares on foreign exchanges.
Alongside this approval, a detailed regulatory framework was introduced, and the Foreign Exchange Management Act (FEMA) rule was amended to support these changes on January 24, 2024.
GIFT-IFSC: A Gateway to Global Capital
The GIFT-IFSC is a strategic initiative aimed at bringing India-related financial services and transactions back to the country. Located in Gujarat, GIFT-IFSC is India’s first International Financial Services Centre, designed to enhance the Indian financial system and increase the competitiveness of Indian companies by facilitating the inflow of global capital. The regulatory and business environment at GIFT-IFSC offers tax exemptions to make companies based there more competitive on the global stage.
Conditions for Entities from Bordering Countries
The framework also sets specific conditions for entities from countries sharing a land border with India, such as China, requiring central government approval before they can invest in the equity shares of Indian companies.
According to the rules, “A holder who is a citizen of a country sharing a land border with India, or an entity incorporated in such a country, or an entity whose beneficial owner is from such a country, shall hold equity shares of such a public Indian company only with the approval of the central government.”
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Pricing Guidelines for Direct Listing
For listed companies, shares must be issued at a price not lower than what is offered to domestic investors. In the case of unlisted entities, the pricing will be determined through a book-building process, ensuring it does not fall below the fair market value as per the applicable FEMA regulations.
Impact of Direct Listing on Investors and Companies
Mahavir Lunawat, Managing Director of Pantomath Capital Advisors and a member of the Working Group on IFSC Direct Listing of Listed Indian Companies on IFSC Exchanges, commented on the benefits of direct listing: “Indian companies can now list directly on IFSC exchanges to tap into global capital. This enables companies to raise substantial funds for expansion opportunities both domestically and internationally. The liberalization of the market and greater integration of global securities markets have significantly facilitated this process, helping to transform IFSC into a vibrant global financial hub.”
Potential Benefits of Increased Foreign Investment
- Higher Company Valuation: Enhanced stock valuations can lead to better returns for investors.
- Boost to Foreign Direct Investment (FDI): Increased FDI can boost confidence in the Indian market, potentially driving economic growth and strengthening stock markets.
- Growth Opportunities for Companies: Direct listing provides companies with more avenues to access global markets, aiding in business expansion.
- Flexibility in Fundraising: Indian companies now have the option to raise funds in both rupees and foreign currency through GIFT-IFSC, offering diversified capital-raising opportunities.
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