Foreign listing: pros and cons for firms, investors

Source: The post is based on the article “Foreign listing: pros and cons for firms, investors” published in “Live mint” on 6th November 2023

Why in the News?

The Ministry of Corporate Affairs has allowed certain unlisted companies to directly list on foreign stock exchanges.

Note: Till now, only companies listed in India could seek a listing on foreign exchange.

Why is there a demand for listing of companies on foreign stock exchanges?

Traditionally, companies raise funds by listing domestically where they’re best understood.

However, tech firms with global presence are changing this trend by listing overseas.This is because:

1.Global Investor Demand: Investors worldwide want high-growth stocks from emerging markets, leading to a demand for overseas-listed companies.

2.Benefits of Overseas Platforms: Global platforms offer more attractive opportunities than local markets.

3.Tech Investor Appeal: Platforms like Nasdaq (US Stock exchange platform) attracts tech investors by providing better valuations.

– On the other hand, domestic exchanges might undervalue tech companies, especially those operating at a loss, due to limited investor expertise and skepticism towards such businesses.

What are the new regulations brought out by the government now?

Currently, any company already listed in India is eligible for foreign secondary listing.

Now, the government has allowed certain unlisted companies to directly list on foreign stock exchanges.

However, unlisted companies are unlikely to be allowed to list anywhere they want. 

The government is expected to provide a list of jurisdictions where Indian firms will be allowed to list. IFSC in Gift City, Gandhinagar is expected to be part of permitted jurisdictions for overseas listing.

What are the regulatory issues that need to be addressed before listing on foreign exchange?

1.Double compliance: Firms must adhere to the rules of the country where they list.Since the firm is incorporated in India, they must also follow Indian capital raising norms as well.

2.Taxation Challenges: Addressing taxation issues, especially concerning capital gains, is crucial for companies listing overseas.

3.Geopolitical Impact: Geopolitical tensions between India and the foreign country where a company is listed could negatively impact the company’s operations and market performance.

UPSC Syllabus- Indian Economy