RBI allows unlisted Indian companies to list abroad

A government notification dated 8 November 2013, amending the “Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme, 1993”, permits unlisted companies incorporated in India to list outside India, without the requirement of prior or subsequent listing in India, initially for a period of two years, subject to certain prescribed conditions. This relaxation, heralded by many market experts as a welcome step, appears to be part of a slew of fresh efforts by the government to plug the rupee plunge and current account deficit problems that continue to plague the Indian economy. Yet the announcement leaves several questions unanswered and it therefore remains to be seen whether this reform will have genuine benefits for Indian companies.

Foreign listing without prior or subsequent listing in India is not new. Prior to 2005 Indian companies such as Satyam, Rediff and Meghmani reaped benefits from exclusive US and Singapore stock exchange listings, before fears of capital flight from Indian markets caused the Indian government to abruptly block such listings. Today, however, such anxiety is baseless as few Indian companies are going for overseas equity issuances. The money raised by companies so far in the 2013-14 financial year is about one-fourth of that raised in 2012-13 and only about one-tenth of that raised in 2011-12.

Boon or bane?

In the current economic scenario, a foreign listing offers several advantages for an Indian company. These may include direct benefits such as easier financial access and higher valuation and may also make strategic business sense for India’s manufacturing and service sector companies. With the US situation highly uncertain, several institutional investors flush with short-term funds could provide easy monetary support outside India to Indian IT, pharma and banking companies, which continue to outperform in an otherwise unreliable Indian economy.

Rajat Mukherjee is a partner and Rishi Shroff is an associate at Khaitan & Co. The views of the authors are personal, and should not be considered as those of the firm.