After a prolonged delay, Indian corporate entities can directly raise capital from international investors and get listed on foreign exchanges. On July 28, 2023, Union Finance Minister Nirmala Sitharaman announced a ground-breaking judgment that will transmute the scenery of Indian corporate entities’ access to international capital. This attempt is set to transfigure the valuation and funding panoramas for both listed and unlisted Indian companies, offering them extraordinary prospects to tap into global funds.
Indian companies can now directly list their shares on foreign exchanges at the International Financial Services Centre (IFSC) in Gujarat International Financial Tech (GIFT) City. This unique zone, situated in Gujarat, offers a distinctive set of inducements and advantages that are parallel to those offered by international jurisdictions. Thus, Indian companies can now access global capital at superior valuations, opening up new avenues for evolution and expansion. Currently, listed Indian companies can use American Depository Receipts or Global Depository Receipts to make their shares available to foreign investors or list debt instruments on overseas exchanges. A few companies comprising Infosys, ICICI Bank and HDFC Bank have used this avenue, but it’s not available for unlisted start-up companies.
The voyage towards empowering the direct listing of Indian companies in GIFT City has been marked by substantial landmarks. Initially, in May 2020, the government stated its intent to allow the direct listing of securities by Indian public companies in global jurisdictions. Nevertheless, the decision was taken in May 2020, nearly two years after a committee set up by the Securities and Exchange Board of India (SEBI) intensely endorsed such an action. While the Companies (Amendment) Bill of 2020 has cleared the decks for permitting direct overseas listing, the essential governing modifications are yet to be completed. Thus, the Companies Act was also appropriately amended to permit such listings, but there was radio silence from the authorities after that, raising worries about whether the government has developed cold feet. One hopes government administrators have utilised the intervening tenure to iron out the crinkles to safeguard such overseas listings take place. The expectations are high this time as some government administrators have reportedly mentioned that the comprehensive guidelines should be out soon.
A Game Changer
GIFT City’s IFSC has observed amazing progress and popularity in recent years. With the presence of both national-level stock exchanges, the Bombay Stock Exchange and the National Stock Exchange, along with prominent Indian and global banking entities, GIFT City has become a hub for financial activities. The establishment of GIFT Nifty derivatives, which have chronicled record volumes, further clots GIFT City’s status as a universal financial centre. This growth is a shred of evidence of the government’s foresight for GIFT City, which spreads beyond conventional finance. GIFT City aims to be a thought trailblazer in the financial industry, providing an extensive variety of services to cater to varied requirements.
The choice to assent direct listing of Indian corporate entities in GIFT City aligns absolutely with this idea, forming an encouraging ecosystem for businesses to flourish and access global capital. Thus, the GIFT City is fabricated to offer a helpful atmosphere for businesses to prosper, revolutionize, and contribute to the development of the financial sector. Through its all-inclusive groundwork, constructive policies, and supervisory outline, GIFT City targets to attract both domestic and foreign companies, promoting collaboration, knowledge-sharing, and technological advancements. The GIFT City provides a widespread kind of break for businesses across numerous sectors. Entities that can register and function in GIFT City include financial institutions, Alternative Investment Funds (AIFs), FinTech companies and Global Trading and Clearing companies.
Financial institutions such as banks, insurance companies, mutual funds, and other financial institutions can establish their operations in GIFT City. The city offers a beneficial setting for these institutions to deliver a broad array of financial services, including banking, insurance, asset management, and wealth management. GIFT City is a gorgeous destination for AIFs eyeing to start a presence in India. AIFs can benefit from constructive governing surroundings, tax incentives, and access to international investors. The IFSC authority has introduced an efficient procedure for AIF registration, making it simpler for fund managers to set up and operate their funds in GIFT City which aspires to nurture innovation in the financial technology sector. FinTech companies can leverage the city’s superior infrastructure, access to international markets, and supervisory encouragement to develop and deploy novel remedies in zones such as digital payments, block chain, artificial intelligence, and data analytics. GIFT City offers a strong trading and clearing environment, enticing foreign trading and clearing companies. These entities can benefit from the City’s innovative trading infrastructure, smooth connectivity to international exchanges, and effective clearing and settlement processes.
Why choose GIFT City?
GIFT City stands out as an inimitable financial centre because of its strategic location, state-of-the-art infrastructure, and business-friendly environment. With an emphasis on ease of doing business, GIFT City provides several advantages that make it a perfect option for companies looking to launch operations in India.
Firstly, situated in the vivacious city of Ahmedabad, GIFT City offers comfortable access to chief financial markets in Asia, Europe, and the United States. Its time zone overlay with these areas sanctions businesses to function flawlessly across different time zones. Secondly, GIFT City has state-of-the-art infrastructure, containing modern office spaces, high-speed connectivity, vigorous Information Technology infrastructure, and trustworthy power supply. The city’s infrastructure is designed to meet global benchmarks and serve the particular necessities of financial institutions.
Thirdly, the Indian government has executed various business-friendly strategies and governing reforms to attract companies. These policies include tax incentives, relaxed regulations, and streamlined measures for setting up and operating businesses in the IFSC. Fourthly, GIFT City provides access to a competent and varied talent pool encompassing professionals from several domains, including finance, technology, and legal services. The availability of skilled professionals guarantees that businesses can find the correct talent to drive their growth and expansion. Fifthly, GIFT City functions under an autonomous supervisory authority, the International Financial Services Centres Authority (IFSCA). The IFSCA offers a strong and effective governing outline that nurtures innovation, ensures investor protection, and maintains market integrity.
Need an Adaptive Regulation
Although the government has decided to transform the landscape of Indian corporate entities’ access to global money, many unanswered queries remain. For instance, as per present provisions, income received from the transfer of shares of an unlisted Indian company listed on a foreign stock exchange would be subject to capital gains tax in India. The tax liability presently depends on the fair market value (FMV) of the company, which may not be reliable due to overseas listing. The price at which shares would be issued on the foreign stock exchanges would be decided by the market forces in the respective jurisdiction, and therefore, it is quite possible that the shares may be issued at a price that is less than the FMV of the shares.
Also, the issue size needs to be in line with the Sebi panel’s suggestion that it should be at least ₹1,000 crore and allotment should be made to at least 200 investors to ensure adequate liquidity and reduce scope for manipulation. So, it is obvious that the regulatory regime needs to be made more adaptive. As the rules and guidelines for direct listing in GIFT City will be finalized and notified soon, Indian companies must sensibly assess this opportunity and strategize their entry into the international markets.
