[Editor’s Note: We had written about this earlier, when the Finance Ministry had given the approval, but was not implemented. Now, it has been officially implemented as part of FDI policy]
In a major change in India’s Foreign Direct Investment (FDI) norms, Indian government has now allowed Indian companies which are not listed in Indian stock exchange to list themselves in stock exchanges of other countries.
Earlier, the FDI rules mandated that any Indian company which wants to list themselves abroad should first enter Indian stock exchange, and only after 2 mandatory years of existence can they list in any other stock exchange, outside India.
“Unlisted companies shall be allowed to raise capital abroad without the requirement of prior or subsequent listing in India initially for a period of two years…,” the Department of Industrial Policy and Promotion (DIPP) said regarding the new FDI rules for Indian companies.
The new regulations have been updated in the “Consolidated FDI Policy” document on DIPP’s website as well.
How Can This Help Unlisted Indian Companies?
There are several ways this decision can help unlisted Indian companies as they are now free to pitch themselves in front of small investors from other countries, and try to gain their capital and their wisdom in making brand global. As per the Government suggestions, the capital raised abroad can be utilized:
- In Clearing outstanding overseas debt
- In running operations and services out of India
- In acquiring foreign companies and setting up base
- In case the funds are not utilized abroad, then the foreign capital generated should be transferred back to India within 15 days, and parked inside any bank of regulated financial institution. Once inside India, these funds can be utilized domestically.
Who Can Invest and How Much?
There are several pointers which need to be taken care of while listing in foreign stock exchange and raising funds outside India. For example, Government of India will suggest the eligibility criteria of those who want to buy shares of your company: for example who can raise funds via ADR/GDRs; inclusion of pension funds; how much percentage a stock holder can buy of an Indian company and so on.
Indian Government is currently very keen on reducing the CAD or Current Account Deficit, which currently stands at $88 billion. The current Rupee vs Dollar currency fiasco had materialized due to this high CAD, and if unlisted Indian companies is able to attract foreign investors via stocks and equities, then it can help bring down CAD to substantial levels.
Unlisted companies can directly list on stock exchanges which come under the International Organization of Securities Commissions (IOSCO)/ Financial Action Task Force (FATF) compliant jurisdictions; and those stock exchanges with which SEBI has bilateral agreements.
People close with this policy change has revealed that it is a pilot project for 2 years, after which the government will again evaluate the gains and losses, and then decide accordingly.
For Indian companies which are planning to scale globally, and haven’t yet listed themselves in Indian stock exchange, this is an excellent opportunity to make it big; officially.