Financial markets play a vital role in connecting potential investors with businesses needing capital to finance their projects and plans. Businesses seek the lowest possible cost of capital that lets them undertake financially viable projects that lead to greater returns on investment. Equity capital from global investors is often cheaper than domestic sources as global investors are diversified and have a wider range of investment options. 

This presents a moment to deliberate on further liberalizing equity capital raising through a focused framework. The framework involves granting the ability to access foreign capital directly for Indian companies. Indian companies are allowed to list their equity shares on international exchanges in GIFT City IFSC which includes platforms like NSE- IFSC, India INX. 

Amendment of Foreign Exchange Management (Non-debt instruments) Rules, 2019, notified the ‘Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme’. Simultaneously, the Corporate Affairs Ministry has issued companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024, that allow Indian companies to list on international exchanges in GIFT City IFSC. 

Key Takeaways of the Framework

Related Read: Setting up Business in GIFT City – Eligibility, and Benefits

A publicly listed Indian company or unlisted public company can issue new equity shares or provide existing shareholders the opportunity to offer their equity shares, under the following conditions: 

  • The issuance or offering of equity shares by existing shareholders must be permitted, with the shares being listed on a specified international exchange. 
  • Any such issuance or offering of equity shares by existing shareholders must comply with prohibited activities and sectoral caps (FDI norms). 
  • Equity shares to be issued by the public Indian company or offered by its existing shareholders on an international exchange must be in dematerialized form and hold equal status with equity shares listed on a recognized stock exchange in India. 

Companies that can Issue Shares on International Exchange

The framework introduced by IFSCA allows specified companies to list their shares directly on international exchanges in GIFT IFSC – NSE IFSC and India INX. Any unlisted public Indian company and any listed Indian company companies are eligible through direct listing route. 

Companies that Cannot List Shares on International Exchange

The framework introduced by IFSCA has specified companies that can list their shares on International Stock exchanges. The following types of companies are not eligible to list their shares: 

  • Companies registered under Section 8 or Nidhi Company under Companies Act, 2013 
  • Companies limited by guarantee and having share capital 
  • Companies with outstanding deposits accepted from the public 
  • Companies with a negative net worth 
  • Companies that have defaulted in payment of dues to any bank, public financial institution, non-convertible debenture holder, or any other secured creditor 
  • Company that has defaulted in filing an annual return under Section 92 or financial statement under Section 137 of the Act within the specified period 
  • Company that has made any application for winding-up 

Who Can Invest in Shares Listed Out of International Exchange in GIFT IFSC? 

The framework issued by IFSCA has specified the type of investors (referred to as ‘permissible holders’) who can invest in listed company on international stock exchanges in GIFT IFSC.

A permissible holder can invest, trade, or hold equity shares of Indian companies listed on international exchanges. The permissible holder is not a person resident in India (i.e. non-resident) 

Benefits of Direct Listing on International Exchange in GIFT City IFSC 

1. Alternate Source of Capital

Companies incorporated in India can reap numerous benefits from accessing capital markets outside their country of incorporation. Many of these advantages stem from a decrease in the cost of capital, particularly in advanced economies with well-established financial markets.

2. Broader Investor Base

Listing on international stock exchanges in GIFT City IFSC broadens and diversifies the pool of investors capable of acquiring and trading the company’s shares. This expansion in demand for the company’s shares reduces the cost of capital, thereby enhancing its attractiveness to investors.

3. Better Valuation

Companies opting to list on international stock exchanges within GIFT City IFSC are equipped with sophisticated asset management infrastructure and anticipate achieving precise valuations for their securities compared to those in domestic capital markets.

4. Other Strategic Benefits

Companies incorporated in India can reap various advantages from listing on international stock exchanges for strategic purposes. These benefits encompass facilitating international employee compensation strategies, enhancing brand awareness, visibility, and providing a currency of exchange to support their international expansion plans.

Benefits of Investing in Companies Listed on the International Exchange in GIFT IFSC

Related Read: Tax Benefits for Investors Setting Up AIFs in GIFT IFSC

Investors (Permissible holders) who want exposure to Indian markets and companies in India, GIFT IFSC would be a preferred route due to the relaxed regulations, compliances requirement and other tax benefits. The following are the benefits:

  • Exemption from Securities Transaction Tax (STT), Commodity Transaction Tax (CTT), and Stamp Duty for transactions conducted on IFSC exchanges.
  • Income from the sale of equity shares listed on the international stock exchange in IFSC/ non-deliverable forward contracts/offshore derivative instruments/over-the-counter derivatives entered would be exempted from tax.

Process for Indian Companies Looking for Direct Listing on International Exchange

Indian companies who are eligible for listing of their shares on International Exchange in GIFT IFSC need to follow the below steps:

Related Read: Maximize Tax Benefits by Setting up Business in GIFT City

  1. Meet the eligibility criteria set by the IFSCA and the international exchange.
  2. Indian company should submit its application for direct listing to the IFSCA, along with all required documents, background and filing fees.
  3. IFSCA reviews the application and conducts necessary due diligence.
  4. If everything is in order and complies with regulations, the IFSCA grants approval for direct listing.
  5. Upon receiving regulatory approval, the company engages with the international exchange to fulfil their listing requirements.
  6. The company completes the listing process on the international exchange as per the exchange’s rules and regulations – this typically involves pricing the shares, finalizing the offering size, and meeting any additional requirements set by the exchange.
  7. Following the listing process, the company’s equity shares will be available for trading for permissible holder (investor) on the international exchange in GIFT IFSC.

Conclusion

To summarize, GIFT City IFSC’s direct listing option offers a promising route for Indian companies with global ambitions to expand their reach and access to funds. Through the framework, eligible Indian companies can directly list their shares on international exchanges in GIFT which will allow easy access to foreign investments, improve the visibility of Indian companies globally, and offer an alternative way to raise capital. This provides a potentially streamlined and cost-effective path for Indian companies to tap into international markets.

Why Choose InCorp Advisory?

Our team at InCorp has the expertise to offer comprehensive assistance throughout the entire process of listing companies on international exchanges in GIFT City IFSC. Below listed are the services we offer:

  • Evaluate the eligibility of potential companies for direct listing
  • Assist in preparing and submitting applications to regulatory bodies in GIFT City IFSC such as stock exchanges and IFSCA.
  • Assistance in compliance with international exchange requirements for direct listing from legal and regulatory perspective.
  • Provide ongoing support in reporting and maintaining records for regulatory compliances mandated by IFSCA and exchange compliances post-listing.

To learn more about our GIFT City services, you can write to us at info@incorpadvisory.in or reach out to us at (+91) 77380 66622.

Frequently Asked Questions (FAQs)