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Govt reduces compliance burden on Indian companies listed overseas

Indian companies listed only in overseas stock exchanges will no longer be considered as “listed companies” in India. The Ministry of Corporate Affairs (MCA) has released clarifications, essentially allowing such companies to function as unlisted ones, and hence bypass disclosure norms prescribed by the Securities and Exchange Board of India (SEBI).

Issued as the Companies (Specification of definitions details) Second Amendment Rules, 2021 on Friday, the new rules will come into effect from April 1, 2021. So far, SEBI has considered public companies raising money from any exchange in the world as listed companies. The new rules do away with definition, thereby significantly reducing compliance requirements.

“Listed companies” currently have had to comply with a laundry list of SEBI requirements, including those concerns with shareholding pattern, corporate governance and financial statement disclosures. The rules will likely come as a relief to companies looking to raise money on foreign stock exchanges in the near future. Several Indian startups are currently considering IPOs, including Zomato, Policybazaar and Flipkart, among several other

The development comes after several months of back-and-forth between industry and the government. Until recently, Indian companies weren’t allowed to list on overseas directory without also listing on an Indian stock exchange. For instance, MakeMyTrip incorporated itself in Mauritius to bypass dual listing altogether, and got listed on US’ Nasdaq.

It was only in September 2020 that Companies Act was amended to allow for direct overseas listing. A month later, it was reported that the government would not mandate secondary listing on domestic firms. However, it is not entirely clear whether the government will indeed mandate Indian listing at some point after overseas listing. Per a Mint report from early September, the MCA was considering making domestic listing mandatory three or five years after the overseas public offer.

Easier access to debt market for Indian companies

The rules also allow for easier access to the debt market for both public and private companies in the country. Companies that have not listed equity shares on the stock market, but have listed non-convertible debt securities and preference shares will no longer be considered “listed companies” according to the new rules, explained Pallav Narang, partner at CNK & Associates. Hitherto, companies (both public and private) who had listed their debt on exchanges would, on paper, qualify as “listed companies” and would have to comply all the requirements that come with it. “Allowing private companies to list debt without having to become a listed company is fairly significant, allowing them to access more debt. It would be quite relevant to startups,” he said.

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On overseas listing, Narang added that while the MCA has clarified the definition of “listed companies”, currently there aren’t many companies that would benefit from it. “This is basically an enabling feature to list outside. You can think that [these rules] are going to allow Indian companies to (i) access the debt market, to list their debt and not have to go through different compliances and (ii) list outside India, again without having to go through additional compliances,” he said.

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***Update (7:50 PM, February 22, 2021): Added inputs based on comment from Pallav Narang. 

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