India: Indian Companies Can Now Raise Capital From All Foreign Investors Through Direct Listing In The International Financial Services Centre

INTRODUCTION

The International Financial Services Centre (IFSC) at the Gujarat International Finance Tec-City City is India's first international financial centre. The objective of the IFSC, which has been created through the Special Economic Zones Act, 2005, is amongst others, to onshore the offshore, i.e. to undertake those India related financial activities in IFSC, which are currently carried out outside of India. IFSC aims to be an alternative to other international financial service centres such as London, New York and Singapore, to attract foreign financial services and foreign capital through ease of doing business and tax incentives. The International Financial Services Centres Authority (IFSCA), established by way of the International Financial Services Centres Authority Act, 2019, is the regulator of financial products/services, service providers and other related matters in the IFSC.

Direct Listing Regime for Indian Companies

Unlisted public limited companies incorporated under the Companies Act, 2013 (Cos Act), can now directly list their equity shares on the India International Exchange (India INX) and the NSE International Exchange (NSEIX, and together with the India INX, IFSC Stock Exchanges), in the IFSC. As on date, companies listed in India, cannot list their shares on the IFSC Stock Exchanges, since the Securities and Exchange Board of India (SEBI) is yet to issue the operational guidelines for listed Indian companies, which we understand is under process, and post which even listed companies in India can issue and list their shares on the IFSC Stock Exchanges.

Cos Act Amendments

The amendment of the Cos Act dated 28 September 2020 paved way for companies incorporated in India to list their shares on stock exchanges in foreign jurisdictions. The amendment was brought into force on 30 October 2023 by way of a notification by the Ministry of Corporate Affairs (MCA). Subsequently, the Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024 (Direct Listing Rules) has also been notified on 24 January 2024 by the MCA, which deals with listing of Indian companies on stock exchanges of permissible jurisdictions and lays out certain eligibility criteria. 'Permissible jurisdiction' has been currently defined to mean IFSC. The Direct Listing Rules can be accessed here.

Foreign Exchange Laws Amendments

The Central Government by its notification dated 24 January 2024, amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (NDI Rules) by way of the Foreign Exchange Management (Nondebt Instruments) Amendment Rules, 2024 (NDI Rules Amendment). In terms of the NDI Rules Amendment, a person, not being a resident of India, is permitted to hold, purchase and/ or sell shares of a company listed on the IFSC Stock Exchanges. Any category of foreign investor can deal in shares of an Indian listed Company on the IFSC Stock Exchanges. Whereas foreign investors can invest in Indian companies listed on the stock exchanges of India only through the foreign portfolio investor route. Indian residents are not allowed to purchase or sell shares of an Indian company listed on the IFSC Stock Exchanges. Further, the restrictions applicable to foreign investors under Press Note 3 dated 17 April 2020 issued by the Ministry of Commerce and Industry, will also apply to foreign investment in Indian companies listed on the IFSC Stock Exchanges. Accordingly, any investor/ beneficial owner which is a citizen of/ is incorporated in a country sharing a land border with India, can hold shares of an Indian company which is listed on the IFSC Stock Exchanges, only with the approval of the Government of India. The NDI Rules Amendment can be accessed here.

The IFSCA Listing Regulations

The IFSCA notified the International Financial Services Centres Authority (Issuance and Listing of Securities) Regulations, 2021 (IFSCA Listing Regulations) on 16 July 2021, which regulates, amongst others, initial public offering of equity shares and convertible securities by an unlisted company incorporated in India, the IFSC or a Foreign Jurisdiction.¹ The IFSCA Listing Regulations specify the eligibility criteria, mode of undertaking an initial public offering, due-diligence requirements, disclosures in offer documents, minimum offer size, pricing, offer period, minimum subscription, amongst others. IFSCA has sought public comments on the IFSCA Listing Regulations, and we expect changes to these regulations in the near future. The IFSCA Listing Regulations can be accessed here.

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Footnotes

1. As per Regulation 2(h) of the IFSCA Listing Regulations, "Foreign Jurisdiction" means a country, other than India, whose securities market regulator is a signatory to International Organization of Securities Commission's Multilateral Memorandum of Understanding IOSCO's MMOU) (Appendix A signatories) a signatory to bilateral Memorandum of Understanding with the IFSCA, and which is not identified in the public statement of Financial Action Task Force as:

i. a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or

ii. a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.

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