Unlisted Companies: Raising Capital Abroad

In the late 1990s, it was possible for
Indian unlisted companies to raise capital overseas and list on overseas stock
exchanges without having a primary listing in India. Companies such as Rediff
and Sify had taken advantage of this mechanism and listed on the US stock
exchanges. However, a few years ago, this route was effectively blocked when
the Government of India stipulated that a primary listing on an Indian stock
exchange was a necessary pre-requisite to an Indian company listing overseas.
This was to assuage fears of flight of listings to overseas exchanges and the
possible exportation of the Indian capital markets.
However, a couple of weeks ago, the
Government of India decided
to reintroduce the mechanism that enables unlisted Indian companies to raise
capital and list overseas without the requirement for a primary listing in
India. This will increase the breadth of choices for unlisted Indian companies
to raise capital.
The new scheme has been introduced on a
temporary pilot basis for 2 years after which it will be reviewed. Moreover,
the scheme is subject to several conditions, including the following:
– Listing is
possible only on exchanges in IOSCO/FATF compliant jurisdiction or where SEBI
has signed bilateral agreements;
– Copy of
returns filed with exchange regulators must also be filed with SEBI for
monitoring money laundering. SEBI’s disclosure requirements must be complied
with in addition to that of the primary exchange abroad;
– Compliance
with the FDI policy is required – which will mean the relevant sectoral caps,
and other industry-based conditions must be satisfied;
– Proceeds may be
utilized for retiring outstanding overseas debt or for operations abroad,
including acquisitions, thereby granting some level of flexibility;
– If funds are
not used abroad, they must be remitted to India within 15 days.
While most of the conditions are
understandable, it is not clear how the requirement to comply with SEBI’s
disclosure requirements will play out. In the past, when primary listings
overseas were allowed, a copy of the prospectus / offer document was merely
filed with SEBI for information purposes, and the disclosure requirements were
consistent with the those of the exchanges where the securities were being
listed. However, under the new dispensation, if the offer document requires
compliance with SEBI’s disclosure regime, it remains to be seen whether SEBI
will take on a greater role of review. One of the advantages of listing
overseas may be to take advantage of regulatory arbitrage and opt for a
jurisdiction that might be friendlier to listings and disclosures, but with
extensive disclosure requirements, such advantages may be minimal if Indian
securities regulations will anyway have to be complied with.

These and other
issues will have to be dealt with in detail before the scheme can be operationalized.
Currently, the scheme has been approved in-principle, but details are awaited
in terms of notifications from the Ministry of Finance and the Reserve Bank of

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • Dear Sir,

    I understand that this development allows only listing of DRs (ADR/GDR) abroad. Do you think direct listing of shares (not DRs issued against underlying shares) of an unlisted Indian company abroad should be permitted? What are the statutory hurdles preventing Indian companies from issuing dollar denominated shares abroad?


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