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Proposal to let Indian companies list abroad directly divides investment banks

A company can list on a foreign exchange only after it has listed on a domestic bourse.

, ET Bureau|
Last Updated: Dec 12, 2019, 11.01 AM IST|Original: Dec 12, 2019, 09.20 AM IST
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Creating such a framework would need amendments to Sebi laws as well as to the Income Tax Act and RBI rules.
Indian and foreign investment banks have taken opposing views even as policy makers are looking at a proposal to allow unlisted Indian companies to directly list in overseas markets, three people privy to the development said.

After a clutch of foreign investment banks made a representation to the finance ministry to allow Indian unlisted companies to freely list on foreign bourses early last month, now a group of Indian investment banks have met various regulatory officials including Sebi, warning such a move could lead to export of Indian markets, they said.

Currently, an Indian company can list on a foreign exchange only after it has listed on a domestic bourse. Or, it can list simultaneously on Indian and overseas exchanges. Even instruments such as American Depository Receipts (ADRs) can be issued only by listed companies.

The Securities and Exchange Board of India (Sebi), though, has initiated consultations with various stakeholders including the central government on the issue after a committee it appointed recommended that Indian companies be allowed to list in select overseas jurisdictions directly.

Creating such a framework would need amendments to Sebi laws as well as to the Income Tax Act and Reserve Bank of India (RBI) rules.

An email sent to Sebi remained unanswered as of press time Wednesday.

“Indian listing is still not viable for several companies, especially in the new age sectors like technology,” said a representative of a global investment bank. “The move will only help Indian companies since they can access broader pool of global capital. There is still a dearth of sophisticated investors in the Indian markets who can understand the risks involved in such investments,” the person said on condition of anonymity.

Another banker privy to the development said majority of foreign investment banks are facing cutthroat competition in India. “In India the fees bankers earn is also less,” the person said. “If overseas listing is permitted for Indian companies, we could get deals where fees earned could be anywhere between 5-7% of the deal size against 1-2% for India listing.”

However, the lobby of domestic investment bankers argues that allowing such a framework will lead to export of Indian capital markets abroad. “The result could be same as that in case of Indian derivatives market,” said a domestic investment banker. “Indian investors should be given the opportunity to be part of the growth story of these banks since the companies earn their revenue from India.”

Indian derivatives market underwent massive change after global bourses like the Singapore Exchange (SGX) started offering Indian derivative products. At the peak, Nifty contracts that were traded in SGX witnessed higher volumes than the on-shore National Stock Exchange (NSE).

Domestic bankers argue that a similar situation could unfold in stocks if companies are permitted to list overseas since technology heavy startups would prefer exchanges like Nasdaq.

The expert panel appointed by Sebi had recommended allowing Indian companies to list in 10 pre-selected jurisdictions which offer market depth and have strong anti-money laundering laws in place.

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