Sebi panel bats for overseas listing of firms
Panel suggests changes in regulatory frameworks such as Sebi Act, Companies Act, tax laws, FEMA
Mumabi: A panel appointed by the Securities and Exchange Board of India (Sebi) recommended that Indian companies should be allowed to list overseas if they meet certain conditions, without a simultaneous listing in the domestic market.
“This issue has been in discussions for years now. This is a very good move, which will open up foreign capital markets directly to Indian companies and Indian markets to foreign companies. It is a very comprehensive report covering all legal and regulatory aspects,” said Lalit Kumar, partner, J Sagar Associates. “Good Indian companies listing directly abroad can deprive Indian investors of good opportunities for investments, but at the same time, they will be allowed to access quality stocks issued by foreign companies if they list directly on Indian bourses.”
In its 26-page report, the Sebi panel suggested changes in regulatory frameworks such as the Sebi Act, Companies Act, tax laws and Foreign Exchange Management Act (FEMA).
It also set a minimum capital threshold for listing overseas, besides recommending 10 overseas jurisdictions, with strong anti-money laundering policies, and are members of the International Organization of Securities Commissions (IOSCO) and Financial Action Task Force (FATF), to ensure that the new rules are not misused.
“Companies will be allowed to list in jurisdictions which has treaty obligations to share information and cooperate with Indian authorities in the event of any investigation,” said the panel.
The panel recommended a regulatory framework for purchase of shares by foreign investors of Indian companies, which are listed overseas under FEMA, but within permissible jurisdictions.
Listing of equity shares of unlisted companies incorporated in India on foreign stock exchanges will be governed by the listing framework of the concerned jurisdiction and not by norms laid down by Sebi, it added. “The changes we have recommended would be enough to legally enable Indian companies to go overseas. Of course, we will have to examine from the point of legal requirement of foreign jurisdictions, too. There are issues that have been referred for the consideration of the tax department. But this time, there is strong political will to make this happen,” said Cyril Shroff, managing partner, Cyril Amarchand Mangaldas, and a member of the Sebi panel.
According to current provisions income earned from transfer of equity shares of an unlisted Indian company listed on a foreign stock exchange would be subject to capital gains tax in India. The panel recommended that the matter of taxation should be taken up with department of revenue.
The tax liability currently depends of fair market value (FMV) of the company. But due to overseas listing the FMV may not be reliable the committee noted.
“Since the price at which shares would be issued on the foreign stock exchanges would be determined by the market forces in the respective jurisdiction pertaining to the particular shares, it is quite possible that the shares may be issued at a price which is less than the FMV of the shares,” said the panel in its report.
To ensure adequate liquidity and reduce scope for manipulation the committee recommended that only high quality companies get listed. Based on that the panel said that minimum 10% of paid-up capital may be listed on Indian stock exchanges(s). Further, the issue size should be at least Rs 1,000 crore and allotment should be made to at least 200 investors.
“Private equity and venture capital funds which are invested in Indian companies are looking for liquidity events. So it is a natural progression for companies to go overseas for adequate from right pools. Next stage of growth for technology driven companies will come from global capital,” said Ranu Vohra, chief executive of financial services firm Avendus Capital Pvt and also a panel member.
On the key issue of rupee not being fully convertible. The market may not become vibrant. However Sebi is in conversation with Reserve Bank of India (RBI) for capital account convertibility on issue by issue basis.
“Masala bonds inspite of rupee not being fully convertible worked,” said Shroff.
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