India will not mandate secondary listing for domestic firms that wish to raise money from foreign stock exchanges, Reuters reported on Thursday. The news comes just weeks after it was reported that the Ministry of Corporate Affairs (MCA) was considering issuing guidelines that would force Indian companies looking to go public overseas to also list themselves on an Indian stock exchange.
Currently, Indian companies cannot raise money in international markets unless they get listed first on an Indian stock exchange. For instance, MakeMyTrip bypassed this requirement by incorporating itself in Mauritius so it could list itself on US-based Nasdaq.
Last month, the Parliament passed the Companies (Amendment) Bill, 2020 allowing for the removal of this mandate. The decision to make this change had been announced earlier by Finance Minister Nirmala Sitharaman, as part of improving ease of doing business in the aftermath of the Covid-19 pandemic.
The Companies (Amendment) Bill, 2020 allows the central government to allow certain classes of public companies to list securities in foreign jurisdictions, as long they these countries have strong anti-money laundering, KYC norms and adhere to regulations of the Financial Action Task Force (FATF).
Companies hailed the bill. Kunal Bahl, CEO of Snapdeal, reacting on Twitter after the bill was passed in the Lok Sabha, said the move would permit “unencumbered direct listing [Indian] companies on foreign stock exchanges” which would allow them to become “global champions”.
Before the bill was passed, Rajan Anandan, managing director of Sequoia Capital India, had told MediaNama the then-proposed legislation was a step in the right direction. “This would allow access to alternate means of capital and help attract better valuation and brand awareness for Indian companies,” he had said.
However, there were also some conflicting reports on the subject. Livemint had reported early September that the MCA might include a “dual listing” clause, which would make the reform largely meaningless. The ministry was reportedly considering three options — simultaneous dual listing in Indian and foreign market, listing in India within three years of an overseas public offer, and lastly, within five years of an overseas public offer.
However, according to Reuters’ latest report, the ministry has decided to drop the dual listing idea. An unnamed official told the publication that there would be no mandate on a secondary India listing.
A possible relief after recent FDI reform
The ministry’s decision will also likely come as good news to finance startups in the country, which were recently prohibited by the Reserve Bank of India from getting foreign direct investments (FDI) from Mauritius. The African nation, where several of India’s most active venture capitalist (VC) and private equity (PE) funds are incorporated. caught the central bank’s eye after the FATF downgraded it to its “grey list”, indicating lax anti-money laundering laws and enforcement. Direct overseas listing may offer an alternative to these companies.