Mumbai: A regulatory panel on overseas listings by Indian companies has recommended that domestic firms be allowed to list only in jurisdictions that have treaty obligations to share information, and would co-operate with New Delhi in the event of an investigation.
The SEBI committee, which submitted its 26-page report on Tuesday on the subject, suggested 10 overseas jurisdictions based on the strength of their respective anti-money laundering frameworks. These countries include the US, the UK, China, Japan, South Korea, and Hong Kong.
It recommended that countries that are members of IOSCO (International Organisation of Securities Commissions) and the Financial Action Task Force be identified as permissible jurisdictions. The panel also suggested that the regulator have a framework that provides for measures to avoid the round-tripping of funds.
The seven-member panel has also recommended that only high-quality companies be allowed to list overseas to ensure adequate liquidity and reduce the scope of manipulation. In such companies, at least 10% of the paid-up capital be listed on Indian stock exchanges, the issue size set at a minimum of Rs 1,000 crore, and allotment made to at least 200 investors, the panel has recommended.
It has also suggested that SEBI take up the matter of taxation with the department of revenue. ET in its edition dated November 29 had reported that the panel is about to recommend changes for direct listing of Indian companies overseas.
Under the current tax laws, income earned from the transfer of equity shares of an unlisted Indian company listed on a foreign stock exchange is subject to capital gains tax in India.
The committee said that if a person receives shares of an Indian company for consideration that is less than the fair market value (FMV), the difference between the FMV and the subscription price would be subject to tax in the hands of the non-resident buyer of the shares.
"Since the price at which shares would be issued on the foreign stock exchanges would be determined by the market forces in the respective jurisdiction pertaining to the particular shares, it is quite possible that the shares may be issued at a price which is less than the FMV of the shares," said the panel’s report, which has been posted on the regulator’s Web site. Those interested could send in their comments by December 24.
At present, Indian companies are not allowed to directly list their equity shares on foreign stock exchanges without listing locally. Likewise, foreign companies cannot directly list their equity shares on Indian stock exchanges.
Indian companies are allowed to access the equity capital markets of foreign countries only through American Depository Receipts (ADR) and Global Depository Receipts (GDR).
They are also allowed to list their debt securities on foreign stock exchanges directly through masala bonds and foreign currency convertible bonds.
Foreign companies can access the Indian capital markets only through the Indian Depository Receipts (IDR).
"An international listing would allow Indian companies to offer ‘global’ employee stock option plans to all of its employees worldwide, which will encourage global talent to join Indian companies," said Ranu Vohra, Co-founder, MD & CEO of Avendus Capital, and also a member of the committee. "Further, given the inherent inflation and relatively smaller domestic institutional and non-institutional pools of capital, the cost of capital in India is still higher vis-à-vis that for a foreign corporate, thereby putting the Indian company at a disadvantage in the marketplace."
The Companies Act, FEMA, Sebi Act, and the relevant tax laws would, however, need amendments for Indian companies to list overseas.
Source: Economics Times