The working group on Direct Listing of Listed Indian Companies on IFSC Exchanges (‘Working Group’) had issued a report in December 2023 (‘WG Report’) identifying key enablers for direct listing of Indian companies on International Financial Services Centre (‘IFSC’) exchanges , which included amendments to be carried out by the Department of Economic Affairs (‘DEA’), Ministry of Finance in the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (‘NDI Rules’) and rules to be notified by the Ministry of Corporate Affairs (‘MCA’).

Pursuant to the recommendations in the WG Report, the DEA amended the NDI Rules on January 24, 2024, by introducing the ‘Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme’ (‘Scheme’), and the MCA issued the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024 (‘LEAP Rules’) under the Companies Act, 2013).

Some of the key aspects of the Scheme and the Leap Rules are summarised below:

1. Scheme

i.    Listed Indian Company and IE: The definition of ‘listed Indian company’ under the NDI Rules has been amended to include an Indian company that has its equity or debt instruments listed on an International Exchange (‘IE’) in the IFSC (i.e., India International Exchange and National Stock Exchange (‘NSE’) International Exchange).

ii.   Issue and Listing on IE on par with RSE: Equity shares of Indian public companies listed on an IE are to be in demat form, treated pari passu with equity shares listed on a Recognised Stock Exchange in India (‘RSE’) and will be subject to the applicable provisions of the NDI Rules and Regulations.

iii.  Permissible Holder: The Scheme permits investment by a ‘permissible holder’ in equity shares of a public company that are listed or to be listed on an IE. A permissible holder is a person who is not a person resident in India and includes a beneficial owner.

A permissible holder, who is not a person resident in India, will require approval from the Central Government if it is a citizen of entity incorporated in, or entity whose beneficial owner is from, a country which shares a land border with India.

iv.   Voting: Voting rights on equity shares listed on IE will be exercised directly by the permissible holder or through its custodian, pursuant to voting instructions from the permissible holder.

v.    Pricing:

(a) Equity shares of an Indian company already listed on an RSE in India can be listed on an IE at a price which is not less than the price applicable to a corresponding mode of issuance of equity shares listed on an RSE under applicable laws;

(b) In case of an initial listing of equity shares on an IE, the listing price is to be determined pursuant to the prescribed book-building process, and cannot be less than the fair market value calculated as per the Foreign Exchange Management Act, 1999; and

(c) Subsequent issuances or transfers of equity shares for the purpose of listing additional equity shares on an IE would be based on applicable pricing norms of the IE.

2. LEAP Rules

i.    Permissible Jurisdiction and Permitted Stock Exchange: IFSC in India has been recognised as a permissible jurisdiction, and the India International Exchange and NSE International Exchange in IFSC are recognised as permitted stock exchanges.

ii.   Applicability: The LEAP Rules apply to unlisted Indian public companies, which issue their securities for listing on such permitted stock exchanges in permissible jurisdictions. The LEAP Rules also apply to listed Indian public companies undertaking such issuances, subject to compliance with regulations prescribed by the Securities and Exchange Board of India (‘SEBI’) or the International Financial Services Centres Authority.

iii.  Ineligibility: Unlisted Indian public companies with partly paid-up equity shares are ineligible for listing on an IE. Further, the LEAP Rules stipulate various conditions that would disentitle an unlisted public company from listing on an IE.

3. Way Forward

The notification of the Scheme and LEAP Rules is a crucial step towards realising the initiative of the Central Government to enable public Indian companies to directly list their equity shares in permitted international exchanges.

While various recommendations in the WG Report are yet to come into effect, the Central Government has, by way of its Press Release dated January 24, 2024, announced that SEBI is in the process of issuing the operational guidelines for enabling listed public Indian companies to directly list their equity shares in permitted international exchanges. Once operationalised, this is expected to facilitate ease of access to global funding for listed public Indian companies.