Report on listing of equity shares of companies incorporated in India on foreign stock exchanges, vice versa: SEBI

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The Securities and Exchange Board of India (SEBI) had on June 12, 2018 constituted an ‘Expert Committee for listing of equity shares of companies incorporated in India on foreign stock exchanges and of companies incorporated outside India on Indian stock exchanges’, with a view to facilitating companies incorporated in India to directly list their equity shares on foreign stock exchanges and companies incorporated outside India to list on Indian stock exchanges, in view, particularly, of the ongoing evolution and internationalization of capital markets across the globe.

The Committee recommended a framework for direct listing of equity shares of companies incorporated in India on foreign stock exchanges and vice versa. The Committee submitted its report to SEBI on December 4, 2018.

The broad ‘Terms of Reference’ of the Committee were to:

a) Examine in detail the economic case for permitting direct listing of Indian companies overseas and vice versa;

b) Examine various legal, operational, and regulatory constraints in facilitating companies incorporated in India to directly list their equity share capital abroad and vice versa; and

c) Make recommendations for a suitable framework in which to facilitate such direct listing.

The Report States:

• The existing legal framework in India does not permit the direct listing of equity shares of companies incorporated in India on foreign stock exchanges. Similarly, companies incorporated outside India cannot directly list their equity shares on Indian stock exchanges.

• The only available routes for companies incorporated in India to access the equity capital markets of foreign jurisdictions is through the American Depository Receipts (“ADR”) and Global Depository Receipts (“GDR”) regime. Companies incorporated in India can list their debt securities on foreign stock exchanges directly through the masala bonds and/or foreign currency convertible bond (“FCCB”)/foreign currency exchangeable bonds (“FCEB”) framework. On the other hand, companies incorporated outside India can access the Indian capital markets only through the Indian Depository Receipts (“IDR”) framework.

• A well-developed, smoothly operating capital market plays an important role in contributing to the health and efficiency of an economy. In addition, there is a strong positive relationship between capital market development and economic growth. Equity listings by companies incorporated in India on foreign stock exchanges would allow them to access foreign capital at a lower cost. The Indian economy, in turn, will experience added growth and economic development. Similarly, equity listings of companies incorporated outside India on Indian Stock Exchanges would improve the efficient allocation of capital and diversification for investors across the Indian economy.

• As a result, SEBI felt it appropriate to consider facilitating companies incorporated in India to directly list their equity shares on foreign stock exchanges and companies incorporated outside India to list on Indian stock exchanges, in view, particularly, of the ongoing evolution and internationalization of capital markets across the globe.

• Accordingly, to analyze this proposal in detail, SEBI constituted the ‘Expert Committee for listing of equity shares of companies incorporated in India on foreign stock exchanges and of companies incorporated outside India on Indian stock exchanges’ on June 12, 2018.

• Various sub-groups were formed to deliberate on specific issues and formulate a roadmap for the framework contemplated in this Report: One sub-group was tasked with preparing the “economic case” in favor of the intended direct listing framework, while another focused on examining the suitability of the extant legal framework in India and suggest appropriate changes to the existing laws, rules, and regulations. Another sub-group looked into the financial requirements and tax-related aspects.

The Report is classified into different chapters as follows:

1. Chapter 1 covers the background and economic rationale for liberalizing the current framework to facilitate direct listing of equity shares of companies incorporated in India on foreign stock exchanges and of companies incorporated outside India on Indian stock exchanges.

i. This chapter presents an economic case for liberalizing the framework to permit direct listing of equity shares under different scenarios, viz. (i) listing of companies incorporated in India on foreign stock exchanges, and (ii) listing of companies incorporated outside India on Indian stock exchanges.

ii. The economic case delves into the benefits that may accrue to all the stakeholders, i.e. the investors, issuers and various other market participants, to the companies incorporated in India as also those incorporated outside India and to the Indian economy as a whole.

2. Chapter 2 deals with listing of companies incorporated in India on foreign stock exchanges.

i. This chapter identifies the foreign jurisdictions and the stock exchanges where listing of equity shares of companies incorporated in India may be considered. It also identifies the primary policy issues under various statutes including Foreign Exchange Management Act, 1999 (“FEMA”), and laws formulated by other Indian regulators, such as, the Reserve Bank of India (“RBI”), SEBI and the Ministry of Corporate Affairs (“MCA”). Further, it also touches upon investor protection measures, investor KYC mechanism and the taxation regime.

3. Chapter 3 outlines the general framework for the Committee’s proposals on listing of equity shares of companies incorporated outside India on Indian Stock Exchanges.

i. Similar to chapter 2, this chapter identifies the jurisdictions whose companies may be permitted to list their equity shares and the Indian stock exchanges for such listing. It also identifies the regulations, which will require amendments to allow companies incorporated outside India to list their equity shares on Indian stock exchanges and for Indian investors to invest in such companies, and also includes the key changes required in these regulations.

4. Chapter 4 summarizes the major recommendations of the Committee.

To view the entire Official Notification in detail, please view the file attached herein.

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