India has seen an increase in capital market transactions, mainly initial public offerings (IPOs). However, are our capital market regulations aligned with international regulations? India is making rapid changes to introduce global best practices and regulations.
Until 2020, the Indian legal framework facilitated the listing of Indian companies’ securities on international stock exchanges only through certificates of deposit. Debt securities could be listed on international stock exchanges in the form of “Masala bonds”. With the new Companies (Amendment) Bill of 2020, it is now possible to directly list shares of Indian companies on foreign stock exchanges. However, related provisions including business eligibility, authorized jurisdiction, tax structure, etc. have yet to be notified. RBI, SEBI, MCA and CBDT must coordinate to make the necessary changes to existing regulations to transparently allow direct listing on foreign stock exchanges.
There is a strong positive relationship between the development of the capital market and economic growth. The health and competence of an economy is fueled by well-developed and easy-going capital market policies. The overseas listing is expected to provide better valuation, an increased investor base and competitiveness for domestic companies, and therefore will have a huge impact on the Indian economy.
The amendments to the Companies Act also suggest granting companies listed on their securities on foreign stock exchanges an exemption from the requirements under India’s listing regulations. This means that unlisted Indian companies can list their securities on foreign stock exchanges without the need to register in India. In August, SEBI resolved numerous changes in the regulatory framework of our capital market. Of these, the most notable change included a reduction in the minimum downtime that must be observed by a promoter following an IPO from 3 years to 18 months and approval to move the concept. from ‘promoter’ to that of ‘controlling person’.
This is in line with international practice as the concept of promoter is unique to India; most of the world’s financial market regulators do not have a promoter system, but rather focus on supervision. Another topic of discussion concerns the Special Purpose Acquisition Company, to facilitate the listing of start-ups, which are generally not able to meet the profitability criteria of a traditional public listing through an IPO.
The SPAC IPO route is an alternative platform to a traditional IPO in the US market. The concept of PSPC has been borrowed from other countries and is still in its infancy here. After gaining popularity in the United States, the PSPC frenzy gained ground in Asia. Given the size and maturity of the IPO market in Asia, regulators are now considering allowing SPAC listing in various Asian countries. As the Indian market has shown openness to new ideas and new products, PSPCs may well be there. However, Indian regulators must introduce separate regulations for IPOs of PSPC, as PSPCs currently cannot meet rigid eligibility standards and other regulatory requirements in India. In early 2021, SEBI relaxed the eligibility and listing criteria on the so-called Innovators Growth Platform (IGP), a separate place of exchange for new-age start-ups. However, around the world the regulations for mainboard entry, especially for start-ups, are easier than in India.
(The author is a partner, BDO India, a global tax, accounting and consulting firm)