In an attempt to attract foreign capital and to arrest a sliding rupee and contain current account deficit (CAD), the government has allowed domestic companies to raise capital by getting listed and selling shares through foreign stock markets without being first listed on local exchanges or prior government permission.
The scheme has several conditions attached to it. Some of the important conditions include:
The government has, however, specified that unlisted companies may be allowed to list only in those countries which are IOSCO (The International Organization of Securities Commissions) or FATF (Financial Action Task Force) compliant. Such compliance ensures that the said country is not involved in any terror funding activities.
The capital raised by companies abroad could be directed towards paying off existing foreign debt, or for operations abroad, including acquisitions. This scheme will be implemented on a pilot basis for a period of two years. After the initial two year period, the impact of this arrangement will be reviewed.
Quite a few companies may find it an exciting initiative. For example - If Cleartrip or Flipkart did not want to do an IPO in India, but wanted to raise money through an IPO abroad, they can now easily do it. In addition to this, once they have raised money abroad, there is no mandatory requirement for them to list in India, which was not the case prior.
Many unlisted mid-sized firms that would be candidates to list abroad would find it hard to meet regulatory requirements and cost structures for overseas markets. But some companies, especially in the export-driven information technology sector, are expected to explore listing opportunities in the United States or London in coming months. Some private equity investors, who have been unable to exit their investments partly due to poor domestic market sentiment, may also explore overseas listing of their portfolio companies.
Despite the conditions mentioned above, it is still a great move by the government to come up with this pilot scheme. This surely will be quite attractive for companies who are looking to expand their horizons abroad.