LEAP to listing: India permits direct listing of shares overseas through IFSC

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MCA & MOF notify rules for the same

– Vinita Nair & Prapti Kanakia | corplaw@vinodkothari.com

Indian companies were permitted to raise funds from overseas either pursuant to issue of depository receipts listed overseas or having the non-residents subscribe to issuances made in India or by way of borrowing overseas. As an initiative to provide an avenue to access global capital markets, GoI had announced the decision to ease raising of foreign funds in order to boost foreign investment inflows, unlock growth opportunities and offer flexibility to Indian companies to raise funds. Consequently, an enabling provision for direct listing of prescribed class of securities on permitted stock exchanges in permissible foreign jurisdictions was inserted vide Companies (Amendment) Act, 2020 in Section 23 of Companies Act, 2013 (‘CA, 2013’), that deals with permissible modes of issue of securities, vide notification dated September 28, 2020 and made effective from October 30, 2023. Thereafter, the Ministry of Corporate Affairs (‘MCA’) notified Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024 (‘LEAP Rules’) effective from January 24, 2024. As listing of shares abroad will result in raising funds from persons resident outside India, Ministry of Finance (‘MoF’) notified FEMA (Non-Debt Instruments) Amendment Rules, 2024 amending FEMA (Non-Debt Instruments) Rules, 2019 (‘NDI Rules’) with effect from January 24, 2024. SEBI is also expected to roll out the operational guidelines for listed companies to list their equity shares on permitted stock exchanges.[1]

Additionally, FAQs on direct listing scheme (FAQs) have also been rolled out on January 24, 2024. Further, two of the key recommendations of the working group report on Direct Listing of Listed Indian Companies on IFSC Exchanges submitted in December 2023 was to notify the rules under Section 23 (3) and (4) of CA, 2013 and notify necessary amendments in NDI Rules to permit cross-jurisdiction issuance and trading of equity shares of Indian companies on IFSC exchanges.

Presently, both the LEAP Rules as well as NDI Rules have notified International Financial Services Centre in India (‘Gift City’) as the permissible jurisdiction and India International Exchange and NSE International Exchange as the permissible stock exchange. International Financial Services Centres Authority (‘IFSCA’) had issued the IFSCA (Issuance and Listing of Securities) Regulations, 2021 effective July 19, 2021 (‘IFSC Regulations’) however, in the absence of enabling provision under CA, 2013 and NDI Rules, Indian companies were unable to undertake listing of securities abroad.

In this article we provide an overview of the regulatory regime and deal with the procedural aspect.

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Aircraft leasing in IFSC

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Team Finserv | finserv@vinodkothari.com

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Our other resources on IFSC

  1. Ship leasing from IFSC: A new business takes shape
  2. Financial entities in IFSC: A primer
  3. Finance Companies / Units in International Financial Services Centre (IFSC)
  4. Budget 2023 and Gift IFSC: Making Things Happen
  5. Consultation paper on the proposed IFSCA (Payment Services) Regulations, 20XX: An Analysis
  6. IFSC Banking Units allowed to deal in Structured Finance Products
  7. Banking & Finance units in IFSC- A regulatory overview

Ship leasing from IFSC: A new business takes shape

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Team finserv | finserv@vinodkothari.com

The International Financial Services Centre, from Gift City, was intended to enable leasing of aircrafts as well as ships. Such leases have traditionally been done from offshore jurisdictions, and the admitted intent of IFSC was to bring these businesses to IFSC.

Ship financing business in India and the world

India is a very important player in the global shipping market, and is ranked no 17 in terms of shipping volume. It has a coastline of about 7,517 km, with 12 major and 205 minor ports. Additionally, it is estimated that about 95% of India’s goods trade by volume and 70% by value is done through maritime transport.

Ship financing volume globally is about USD 500 billion, largely consisting of bank finance. There are two types of leases against ships: bare board charter, and voyage or time charter. In case of the former, the lessor merely provides the vessel, with neither the crew or any other services, whereas in case of the latter, the ship is provided on time basis, with all services.

India is a substantial importer of shipping freight. It is estimated that annually, Indian companies pay about $75 billion for seaborne freight to foreign shipping companies. 

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Consultation paper on the proposed IFSCA (Payment Services) Regulations, 20XX: An Analysis

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By Anirudh Grover, Executive, finserv@vinodkothari.com

The International Financial Services Centre Authority in an attempt to restructure the regulatory overview of the Payment Services segment in GIFT IFSC has issued a Consultation Paper dated June 13, 2023 (‘CP’), along with the draft regulations that will be applicable to the payment services market in GIFT IFSC. The aim of this write-up is to critically analyze the same with comparisons with the current RBI framework and similar guidelines practiced by regulators globally.  

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Budget 2023 and Gift IFSC: Making Things Happen

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Anirudh Grover, Executive | finserv@vinodkothari.com

Background and Existing Framework

The International Financial Services Centre (“IFSC”) situated in the GIFT city is deemed to be a quasi-foreign territory from the lens of Foreign Exchange Management Act, 1999 however a domestic area under the tax regime. The objective of setting up specified territory lies in the benefits an IFSC jurisdiction provides in the form of free flow of foreign transactions and investor confidence; this setting up is commonly termed as onshoring the offshore. 

In order to materialize the underlying objective, a specific regulatory framework has been designed which includes the incorporation of the following major entities:

  1. Finance Companies: The concept of Finance Companies are pari materia to the concept of non-banking financial companies, the unified regulator IFSCA has issued regulations specifically dealing with the concept of Finance Companies. The detailed write up of which can be found in our write up.
  2. Fund Management Entities (‘FMEs’): FMEs are entities which act as pooling vehicles for various kinds of investors, this concept of FME’s is equivalent to the concept of Alternative Investment Fund. A designated regulatory framework has been specially established by the unified regulatory for governing the framework of FMEs in IFSC, the details of which can be captured from our write up
  3. Banking Units: As far as Banking Units are concerned, the IFSCA has outlined a framework through which Indian banks or foreign banks can set up their shop in the form of branches in IFSC GIFT City. The IFSCA (Banking) Regulations, 2020 are the principal regulations governing the Banking Units established in the IFSC GIFT City. My colleague has already covered the regulatory overview on this aspect in our write up. 

Apart from these entities there are other entities as well which are running their businesses from IFSC GIFT City which includes Fintech Entities, Capital Market Intermediaries and Insurance Intermediaries. The Union Budget of 2022 paved the way for bringing fundamental changes in the IFSC jurisdiction which resulted in the establishment of a regulatory framework namely IFSCA (Setting up and Operation of International Branch Campuses and Offshore Education Centres) Regulations, 2022. By virtue of these regulations now Foreign Universities have been allowed to set up their base in IFSC. Further the Union Budget 2022 also laid the ground for establishment of an Arbitration Centre which would allow disputes to be resolved in record time. 

Albeit these announcements came out to be a key in evincing interest in the IFSC jurisdiction however it is perceived that there are certain pivotal areas of law which require further modifications/clarifications which is expected to be a part of the Union Budget of 2023.

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Finance Companies / Units in International Financial Services Centre (IFSC)

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– Anirudh Grover, Executive | finserv@vinodkothari.com

Table of Contents

BackgroundIFSCA Framework for Finance Companies / Units Implications under FEMA
What are Finance Companies and Finance Units?Registration RequirementsAsset Side Transactions
What does a finance company/unit do?Owned Funds requirementCapital and Liabilities Side Transactions
Can they accept deposits?Corporate Governance AspectsDifference between Finance Company / Unit & NBFCs
Liquidity Risk Management (LRM) FrameworkConclusion

Background

International Finance Service Centre (IFSC) is a designated zone physically situated in India but is not considered a part of India. As the name suggests, it is a designated centre set up for the purpose of enabling international financial services, the key word here being international. The purpose is not only to bring global funds into the country but also facilitate such transactions through this zone which otherwise would have been carried out by foreign branches of domestic entities. This purpose is intended to be achieved through establishment of various businesses such as banking units, fund management entities, finance companies etc. We have discussed in depth about the concept of IFSCs along with the applicability of the domestic regulatory framework in our write-up Financial entities in IFSC: A primer.

The objective of this paper is to picture a comprehensive image of all the aspects of finance entities starting from what is meant by finance companies to all the regulatory exposure it has to bear while undertaking any kind of activities.

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Financial entities in IFSC: A primer

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– Parth Ved, Executive | parth@vinodkothari.com

Table of contents

BackgroundApplicability of Domestic Regulatory framework Regulatory framework in IFSC
What is IFSC?Companies Act, 2013IFSCA (Finance Company) Regulations, 2021
Purpose of setting up an IFSC Foreign Exchange Management Act, 1999Specific Frameworks for Aircraft Leasing and Ship Leasing
Who regulates IFSC?Income tax act, 1961IFSCA (Fund Management) Regulations, 2022
Is IFSC and GIFT City the same? Goods and Services TaxIFSCA (Banking) Regulations, 2020
Permission for setting up an entity in IFSCStamp dutyClosing remarks
Securities lawRelevant Links
Banking law

Background

Flow of funds, just like a river, not only enriches its destination but also benefits all the stops it passes through. Having a financial hub, a stopover which enables routing billions and billions of global funds on a daily basis can definitely prove resourceful. London, New York, Singapore are some of the globally recognised financial centres, and needless to say these locations are at the forefront of financial development. India too has tried to tap into this with the setting up of GIFT-IFSC in Gujarat, and has tried to position itself as the next big global hub for financial transactions.

Through this write-up, the author tries to explain the concept of International Financial Services Centre and the applicability of domestic regulatory framework on entities set up therein.

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