Why in news?
The Securities and Exchange Board of India (SEBI) has constituted an expert committee, which is considering allowing India-incorporated companies to list on foreign stock markets.
What is the need?
- For corporations with investment plans, raising finance locally had been hard in recent years.
- Access to bank finance has become difficult as a result of Indian banks’ huge bad debt.
- The weakening rupee has made foreign borrowing a risky proposition.
- Also, India’s corporate bond market still lacks some potential.
What are the benefits?
- Overseas listing offers access to a wider, global pool of relatively cheap risk capital.
- This avenue was open to Indian companies via the American Depository Receipts (ADRs), Global Depository Receipts (GDRs).
- But the modus operandi is complicated in these modes.
- Companies had to set up holding companies or special purpose vehicles and intermediaries (depository participants) to avail these.
- This makes it unworkable for mid-size and smaller companies in terms of time and cost.
- Further, most reputed bourses have stringent norms of disclosure and transparency.
- Direct listing in these would raise the standards for Indian companies.
- As companies still lack global best practices, despite reforms in accountancy standards recently.
- The gains for Indian shareholders too can be significant.
What are the challenges?
- SEBI has to synchronise its regulatory architecture with the leading global bourses.
- The treatment of such inflows of foreign funds is another issue.
- This gains significance both with monetary policy imperatives as well as economic policy.
- This is especially true in sectors with foreign direct investment restrictions.
- Taxation issues will be another complex issue to handle in this regard.
- All of these suggest that direct listing will not be an innovation that SEBI will materialise any time soon.
- However, there are significant gains to be garnered for both sets of players in such overseas listings norms.
Source: Business Standard
