OVERVIEW:

• The Government of India has recently eased the listing requirements for Indian companies seeking to list on international exchanges within International Financial Service Centres (IFSCs).

• This move is part of a significant amendment to the Securities Contracts (Regulation) Rules, 1957, which governs the regulatory framework for listings.

• The amendment represents a pivotal development, aimed at facilitating easier access for Indian companies to international capital markets through IFSCs, thereby enhancing the global reach and competitiveness of Indian businesses.

AMENDMENT TO SECURITIES CONTRACTS (REGULATION) RULES, 1957:

• The Indian government has amended the Securities Contracts (Regulation) Rules, 1957, to lower the Minimum Public Shareholding (MPS) requirement for companies.

• This amendment reduces the MPS requirement from 25% to 10% for unlisted companies seeking direct listing in IFSC.

• This change is seen as a strategic move to align with the evolving needs of the market and provide a more conducive environment for companies, particularly those in the growth phase, to raise capital through public offerings.

REQUIRED OF REDUCTION IN MPS:

• Traditionally, companies were required to maintain a minimum public shareholding of 25%, which is a standard practice aligned with global norms.

• However, this often posed challenges for companies, especially those in their early growth stages, as it required them to dilute a significant portion of their equity to the public.

• The reduction of the MPS to 10% significantly eases this burden, allowing companies to retain a larger share of ownership while still accessing public capital markets.

IMPACT OF AMENDMENT :

       – Reduced Compliance Burden:

• By lowering the MPS requirement, the government has effectively reduced the compliance burden on companies that means more streamlined processes for companies looking to list in IFSCs.

• This reduction requirements is expected to accelerate the listing process and make it easier for companies to meet the criteria for public offerings within GIFT City.

       – Increased Flexibility in Equity Management:

• The new MPS requirement gives companies greater flexibility in managing their equity structure.

• They can now strategically plan their equity allocation, balancing between retaining control and raising necessary capital.

       – Encouragement for Unlisted Companies:

• The amendment is particularly encouraging for unlisted companies, especially those in sectors like fintech, insurance, global trading, and other innovative industries.

• These companies, often in their nascent stages, can now consider listing in an IFSC without the pressure of meeting high MPS requirements.

       – Broader Implications for the Indian Financial Market:

• The reduction in MPS requirements could have broader implications for the Indian financial market.

• It could lead to a more vibrant and diverse market ecosystem, with a greater number of companies choosing to list in IFSCs.

       – Benefits for Foreign Investors:

• The new framework is designed to encourage foreign investors to participate in the Indian equity market through GIFT City.

• By doing so, they can benefit from a business-friendly regulatory environment and attractive tax incentives.

• Additionally, transactions in GIFT City are conducted in foreign currencies, reducing the risk associated with currency fluctuations.

• This makes GIFT City an appealing option for foreign investors looking for exposure to Indian companies without the currency risk that typically accompanies cross-border investments.

CONCLUSION:

• The government’s decision to ease norms for listing on international exchanges within GIFT City represents a significant milestone in India’s financial market liberalization efforts.

• This comprehensive relaxation in the MPS requirements is a testament to the government’s commitment to creating a more flexible and growth-oriented regulatory environment in IFSC.

• It is expected to attract global investment, provide Indian companies with better access to capital, and position GIFT City as a leading international financial hub.