Govt permits direct listing by Indian firms on GIFT-IFSC’s international markets

Subject: Economy

Section: Monetary policy

Context:

The government on Wednesday allowed direct listing of securities by public Indian companies on the international exchanges of GIFT International Financial Services Centre (GIFT-IFSC).

More on news:

In July, Finance Minister Nirmala Sitharaman announced that the government had decided to enable direct listing of listed and unlisted companies on the IFSC exchanges.
The move is expected to give Indian companies access to cheaper foreign capital, boost foreign investment, and broaden investors.
Direct listing of Indian companies’ shares on GIFT City exchanges is the first step in allowing them to list overseas.
Until now Indian companies have not been permitted to list directly overseas markets, and instead use depository receipts i.e. American Depository Receipts or Global Depository Receipts to do so.

What is direct listing and IPO?

Direct Listing:

A direct listing is a process by which a company can go public by selling existing shares instead of offering new ones.
The process makes existing stock owned by employees and/or investors available for the public to buy and does not require underwriters or a lock-up period.

IPO:

An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors.
An IPO is typically underwritten by one or more investment banks, who also arrange for the shares to be listed on one or more stock exchanges.

Amendments made:

The Department of Economic Affairs of the Finance Ministry has amended Foreign Exchange Management (Non-debt Instruments) Rules, 2019, and notified the Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme.
The Ministry of Corporate Affairs (MCA) has issued Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024.
This will provide an overarching regulatory framework to enable public Indian companies to issue and list their shares in permitted international exchanges.

Benefits of the decision:

Public Indian companies will have the flexibility to access both markets—domestic for raising capital in rupees and international market at IFSC for raising capital in foreign currency from the global investors.
This initiative will particularly benefit Indian companies going global and having ambitions to look at opportunities for expanding their presence in other markets.
It is also expected to provide a boost to the capital market ecosystem at GIFT IFSC by provision of new investment opportunities for investors, diversification of financial products and by enhancing liquidity.
The framework allows unlisted public Indian companies to list their shares on an international exchange.

About GIFT-IFSC:

GIFT (Gujarat International Finance Tec-City) is located in Gandhinagar is India’s first International Financial Services Centre.
GIFT-IFSC is set up with the objective of connecting India with global opportunities while helping the Indian economy connect with the global financial system and facilitating seamless flow of global capital into India.
IFSCs are intended to provide Indian corporates with easier access to global financial markets, and to complement and promote further development of financial markets in India.
The international stock exchanges at GIFT-IFSC—India International Exchange and NSE International Exchange—are currently prescribed as the permitted stock exchanges.
These exchanges are under the regulatory supervision of the International Financial Services Centres Authority (IFSCA).

About International Financial Services Centres Authority(IFSCA):

The (IFSCA) was established on April 27, 2020 under the International Financial Services Centres Authority Act, 2019.
It is a regulatory body established by the Government of India.
It is headquartered at GIFT City, Gandhinagar in Gujarat..
The primary objective of IFSCA is to develop and regulate the financial products, financial services, and financial institutions in the IFSCs to promote ease of doing business.
IFSCA has a broad regulatory scope covering various financial services, institutions, and activities within the IFSCs.
Prior to the establishment of IFSCA, the domestic financial regulators, namely, RBI, SEBI, PFRDA and IRDAI regulated the business in IFSC.