As part of its USD 266 billion (INR 20 lakh crore) COVID-19 stimulus package, India’s Finance Minister announced in May 2020 that the government would allow the direct listing of securities of Indian public companies on approved overseas stock exchanges. The change will open another route for Indian companies to raise capital offshore, which until now has been largely limited to GDR and ADR issuances or listing debt securities on foreign exchanges, or registering a foreign listco entity in the target jurisdiction.
The measure has been approved as part of a bill amending the Indian Companies Act, 2013. The bill empowers the Indian government to allow certain public companies to list prescribed classes of securities in “permissible foreign jurisdictions”. The measure will enter into force once relevant amendments to the Companies Act and the Foreign Exchange Management Act are legally effected. We expect related tax legislation also will need to be amended to allow Indian issuers and overseas investors to take full advantage of this new opportunity.
The Securities and Exchange Board of India (SEBI) had previously recommended a framework within which such direct listing would be facilitated, and it is expected that SEBI’s framework will be the basis for future regulation in this area. SEBI had proposed allowing listings on stock exchanges in ten “permissible jurisdictions” with strong anti-money laundering regulations, including the NYSE, NASDAQ, the London Stock Exchange and the Stock Exchange of Hong Kong, along with other major exchanges in China, Japan, South Korea, France, Germany, Switzerland and Canada. But for Indian companies considering listing in these jurisdictions—particularly in New York, London and Hong Kong—what will be the primary attractions of these markets?
Listing on the New York Stock Exchange (NYSE) or NASDAQ
The United States is home to the deepest and most liquid capital markets in the world, and the NYSE and NASDAQ are key listing venues. US corporate governance standards applicable to domestic companies are generally expected to be followed by foreign issuers as well. While these exchanges permit some dispensations for non-US companies, such as allowing preparation of financial information using IFRS or local GAAP rather than US GAAP, the regulatory and corporate governance requirements are nonetheless extensive. For example, companies listed in the United States are subject to the corporate governance requirements of the Sarbanes-Oxley Act, including internal controls over financial reporting and disclosure, detailed audit committee independence requirements, and senior management compliance certifications. The securities liability regime and culture of shareholder activism in the United States create additional considerations for foreign companies to balance against access to the deep US investor base.
Listing on the London Stock Exchange (LSE)
Along with the NYSE and NASDAQ, the LSE is one of the most international stock exchanges, with listings from companies from more than 60 countries. The LSE serves as Europe’s principal source of listed fundraisings and is linked by way of partnerships to Asia (including a trading link to Shanghai). London’s significance as a financial market, high trade volumes, access to investor capital and clearing, data and indices capabilities make it an attractive listing destination. However, a listing on the LSE involves significant ongoing obligations to comply with UK Listing Rules and disclosure requirements, particularly (in cases of a premium listing) in relation to transactions of a significant size, related party transactions and inside information. In addition, listed companies are required to adhere to multiple reporting and regulatory obligations on an ongoing basis.
Listing on the Stock Exchange of Hong Kong (HKSE)
The HKSE is one of the leading listing venues in Asia and globally. It has been the number one ranked global IPO fund formation centre in five of the past eight years. The HKSE attracts listing applicants from a range of industries and regions, including Hong Kong and Mainland Chinese companies as well as international companies seeking access to liquidity available in the China and APAC markets. Hong Kong also benefits from a sound financial regulatory regime which follows international standards and practices. Hong Kong IPO issuers and sponsors must satisfy extensive due diligence and disclosure standards as well as meet required corporate governance standards. Over the past few years, the HKSE has taken steps to diversify and increase its competitiveness, introducing regimes to attract listings of biotech companies and those in emerging and innovative sectors. India is already on the list of acceptable overseas jurisdictions for companies to list in Hong Kong.
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© Herbert Smith Freehills 2021