NAVIGATING GLOBAL MARKETS: A COMPREHENSIVE GUIDE TO LISTING INDIAN COMPANIES ABROAD

In the dynamic landscape of international finance, the listing of securities on foreign exchanges has emerged as a strategic avenue for Indian companies to raise capital and for investors to diversify their portfolios. This article delves into the evolution of this trend, exploring the government's initial steps, the introduction of ADRs and GDRs, and the ongoing developments towards enabling direct listings on foreign exchanges.

 

GOVERNMENT INITIATIVES AND EVOLUTION

Recognizing the need for Indian companies to access global capital, the government introduced American Depository Receipts (ADRs) and Global Depository Receipts (GDRs). ADRs facilitate the raising of capital from American investors, while GDRs enable Indian companies to trade their shares on various global exchanges. These instruments were a significant step forward but raised concerns about the absence of direct listings.

 

UNDERSTANDING ADRS AND GDRS

50. ADR (American Depository Receipts)

- Sponsored ADR: Involves a legal agreement between a non-American company and a US depository bank for shares issuance.

- Unsponsored ADR: Shares of a non-American company traded over-the-counter without a legal agreement with a depository bank.

 

50. GDR (Global Depository Receipts)

- Allows non-American companies to trade in the US market.

 - Permits non-American companies to raise capital and trade in the European market.

 

THE CALL FOR DIRECT LISTINGS

As the global financial landscape evolved, concerns about limiting Indian companies to ADRs and GDRs surfaced. In response, the Securities and Exchange Board of India (SEBI) formed a committee in 2018 to explore the possibility of direct listings. The committee recommended a framework for the direct listing process, addressing legal, operational, and regulatory constraints.

 

DIRECT LISTING: A GAME-CHANGER IN THE MAKING

 

Definition of Direct Listing

Direct listing is a process allowing a domestic company to list its shares on a foreign exchange without an intermediary. This empowers Indian companies to trade their shares directly on international stock exchanges, fostering global market presence.

 

Government's Stance and Current Status

The Ministry of Corporate Affairs is actively working on facilitating direct listings, a move anticipated to be implemented in the near future. However, certain amendments, including changes to Section 23 of the Companies Act 2013, are prerequisites. Companies must meet specific criteria related to average profit, paid-up share capital, and tangible and intangible assets for direct enlistment on foreign exchanges.

 

BENEFITS OF DIRECT LISTING

The introduction of direct listings promises a myriad of benefits:

1. Alternative Capital Source: Direct listings provide companies with an alternative source of capital beyond domestic markets.

2. Global Investor Base: Companies gain access to a broader investor base, fostering diversity in ownership.

3. International Brand Recognition: Direct listings enhance a company's global visibility and brand recognition.

4. Better Valuation: Exposure to international markets can lead to better valuation and pricing of company shares.

5. Foreign Income Opportunities: Direct listings open avenues for generating income in foreign currencies.

 

CASE IN POINT: COFORGE'S ADR FILING

In a notable development, Coforge, a mid-cap IT firm, filed for an IPO in the US via an ADR. This move exemplifies the growing trend of Indian companies exploring global avenues for capital and recognition.

 

COMPANIES CURRENTLY LISTED OVERSEAS

Several Indian companies have embraced ADRs and GDRs to access foreign capital and markets. Notable ADR-listed companies include HDFC Bank, Infosys, and Tata Motors, while GDR-listed companies include Apollo Hospitals Enterprise and Bajaj Auto.

 

CONCLUSION: PAVING THE WAY FOR GLOBAL PROSPERITY

In conclusion, the government's progressive steps, from the introduction of ADRs and GDRs to the ongoing efforts towards direct listings, reflect a commitment to positioning Indian companies on the global stage. As direct listings become a reality, Indian businesses stand to gain unprecedented advantages, from diverse capital sources to enhanced international recognition. The evolving landscape promises a new era of global economic collaboration, with Indian companies at the forefront of innovation and growth.

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Article Compiled by:-

Mayank Garg

(LegalMantra.net Team)

+91 9582627751

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.

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