A working committee constituted by the IFSC Gift City (International Finance Services centre) to finalise the policy framework for direct listing on the bourses has suggested that stocks traded here be made fungible. This would enable foreign investors transacting in Gift City to convert dollar-denominated shares and sell them on the National Stock Exchange (NSE) or the BSE in case they are not able to exit their holdings in Gift City.
Following a notification by the Ministry of Corporate Affairs (MCA) on October 30, a section of Indian public companies can now list a certain class of securities in permitted foreign jurisdictions starting with the IFSC in Gift City, Gujarat. The MCA has brought into force a provision to enable such listings on overseas exchanges.
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An expert familiar with the framing of the rules for direct listings explained that the fungibility was being considered to encourage foreign investors to explore trading in Gift City. “If trading volumes are thin, some of them may get discouraged,” the person said. Market watchers have noted that liquidity in Gift City may not be as high as it is on the NSE or BSE, and investors may lose out. However, once an investor decides to exit on the NSE or BSE, the fund would lose the tax and other benefits.
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Senior corporate lawyer HP Ranina observed that enabling foreign investors to buy into Indian companies, via dollar-denominated transactions, would shield them from foreign exchange fluctuations. Ranina, however, said the compliance requirements for Indian companies could be more onerous compared with the NSE or BSE. “The parameters set by the Gift City could be different and match those on the Nasdaq or NYSE and may require companies to be more compliant,” he noted.
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“Indian companies can now list directly in Gift City. They don’t need to issue ADRs or GDRs, which can be much more onerous. Moreover, ownership structures tend to be more opaque with ADRs and GDRs,” Mahavir Lunawat, MD, Pantomath Capital Advisors, pointed out.
The direct listing facility would give Indian companies access to diverse pools of capital, a wider base of investors and better valuation for tech-businesses. “More startups would be encouraged to list in Gift City,” noted an expert.
Finance minister Nirmala Sitharaman had observed in September: “We are looking at this thing (foreign listing) commencing with the IFSC in GIFT city. Once that is done, we may look at moving further.”
