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Indian Unlisted Companies Allowed to List Internationally

December 2, 2013

The Ministry of Finance ("MoF") through a press release dated September 27, 2013 ("Press Release")1, has permitted unlisted Indian companies to list directly on offshore stock exchanges without prior or simultaneous or subsequent listing in India, which was not permitted earlier.

The main features of Press Release are:
  • Unlisted companies allowed to issue ADRs/ GDRs without the requirement of prior, simultaneous or subsequent listing on Indian stock exchanges;
  • Relaxation for a limited period of two years only, as of now;
  • Capital raised may be used for offshore purposes; else must be repatriated to India for domestic purposes, within 15 days.

This move comes in the backdrop of relatively weak domestic capital markets with very few successful Initial Public Offers ("IPOs") of Indian companies in recent times and India's increasing current account deficit(“CAD”). The MoF has permitted Indian unlisted companies to list their American depository receipts ("ADR") global depository receipts ("GDR") or foreign currency convertible bonds ("FCCB") abroad on a pilot basis for two years without a listing requirement in India.

Consequent to the Press Release, the Central Government in its notification dated October 11, 2013 ("Notification")2 amended the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 ("Scheme"). The Reserve Bank of India ("RBI") has now followed this up with a circular dated November 8, 2013 ("Circular")3 directing the authorized dealers towards the amendment to the Scheme. Background

In the year 2005, the MoF disallowed issuance of GDRs without listing in India.

The Securities Exchange Board of India ("SEBI") supported this move since it believed that it would help the development of domestic capital markets and shall also give it regulatory control over companies issuing GDRs/FCCBs.

However, the poor performance of the domestic capital markets in recent years and the consequent impact on the market sentiment has made it difficult for companies to raise money from domestic capital market..

In this background, it seems the government has now decided to permit Indian unlisted companies to issue ADRs/ GDRs without the requirement to list in the domestic stock exchange.


The Notification has amended the regulation 3(1)(B) of the Scheme to permit Indian unlisted companies to issue GDRs/ FCCBs without having to fulfill the requirement of a simultaneous domestic listing.

Before the amendment, the regulation 3(1)(B) of the Scheme read as under:

"Unlisted Indian Companies issuing Global Depositary Receipts/Foreign Currency Convertible Bonds shall be required to simultaneously list in the Indian Stock Exchange(s)."

However, now this restriction has been removed and unlisted Indian companies issuing GDR/FCCB may raise capital abroad subject to the following conditions:

  • The companies will be permitted to list on exchanges in IOSCO/FATF compliant jurisdictions or those jurisdictions with which SEBI has signed bilateral agreements (which are yet to be notified);
  • The companies will have to comply with SEBI's disclosure requirements in addition to that of the exchange where it is to be listed;
  • A copy of return filed with the offshore exchange will also have to be filed with SEBI for the purposes of the Prevention of Money Laundering Act;
  • The raising of capital abroad shall be in accordance with the extant foreign direct investment policy ("FDI Policy"), including the sectoral caps, entry route, minimum capitalization norms and pricing norms;
  • The number of underlying equity shares offered for issuance of ADRs/GDRs to be kept with the lo cal custodian shall be determined upfront and ratio of ADRs/GDRs to equity shares shall be decided upfront based on applicable FDI pricing norms of equity shares of unlisted company;
  • The unlisted Indian company shall comply with the instructions on downstream investment as notified by the Reserve Bank from time to time;
  • The funds raised may be used for paying off overseas debt or for operations abroad, including for the funding of acquisitions;
  • The criteria for eligibility of unlisted companies raising funds through ADR/ GDR shall be prescribed by the Government of India;
  • In case the money raised in the offshore listing is not utilized overseas as described, it shall be remitted back to India within 15 days for domestic use and parked in AD category banks;
  • The listing company shall report to RBI as prescribed under sub-paragraphs (2) and (3) of Paragraph 4 of Schedule 1 to FEMA Notification No. 20.
Analysis of Press Release

Offshore structures: It is expected that the change in law shall provide enough encouragement for Indian companies seeking funds from abroad to refrain from setting up offshore companies (that through their Indian subsidiary own the Indian asset) and Indian companies will directly be able to tap the offshore capital markets.

Compliance with the FDI policy: The fund-raising from abroad is required to be in compliance with the extant FDI Policy. The Scheme states that an investment made in a company through GDRs/FCCBs shall be treated as FDI and shall be restricted to 51% of the issued and subscribed share capital of the issuing company.4 The Scheme has to be read in conjunction with the FDI policy, and in effect even if FDI in a particular sector is permitted above 51%, investment by way of GDRs/FCCBs shall be restricted to only 51%.

Pricing: The Scheme states that pricing of offshore securities issued by unlisted companies shall be in accordance with the RBI regulations5..

Disclosure requirements: The amendment clearly states that issuing companies are required to comply with disclosure requirements of the SEBI. The Notification mentions that the disclosure requirements are for the purposes of compliance with the Prevention of Money Laundering Act, 2002.

Raising for overseas purposes: The Notification states that the funds raised for 'retiring outstanding overseas debt or for bona fide operations abroad including for acquisitions' shall have to repatriated to India and used for eligible uses, if the funds are not utilized within 15 days. While the intent seems to be to ensure that the funds, if raised for offshore purposes are not utilized for such bona fide purposes, it must not lie outside India, the period for the utilization seems to be rather short. To avail of the offshore utilization option provided, the company issuing the GDRs may have to structure the issuance in a manner that they are not forced to repatriate the funds to India on account of their inability to use such funds within a period of 15 days..

The Notification mentions that the funds repatriated to India shall be used for domestic eligible purposes only as set out in the Scheme.

Pilot basis: The Notification, which amends the Scheme, mentions that unlisted companies shall be allowed to raise capital abroad 'without the requirement of prior or subsequent listing in India initially for a period of two years'.

According to the Press Release, it was proposed that the impact of the arrangement would be reviewed after the expiry of the two year period. The Circular mentions that the Scheme will be implemented subject to review after a period of two years. This has led to some ambiguity on the applicability of the changes and it remains to be seen whether following the review the scheme of allowing such offshore listings, without listing will be continue to be available to unlisted Indian companies.


The government aims to bring down the CAD to below USD 60 billion this fiscal, as against $88.2 billion in the last financial year.Rupee value versus US dollar has been affected severely because of high CAD and other global factors..

These changes have the potential to have wide-reaching impact on unlisted Indian companies as well as on both domestic and foreign investors, by providing Indian companies new avenues to raise funds Whilst the changes have come in at a time when the domestic markets continue to perform poorly and companies have been looking at alternate routes to raise funds and provide exits to their investors, issuing clarifications regarding issues identified above will lend greater certainty and encourage companies to seriously consider offshore capital listings.

Further, since the issuance of GDRs is subject to the SEBI disclosures, SEBI notification laying down the requisite disclosure requirements is awaited before this relaxation may be utilized by Indian companies.*

  1. The Press Release is available on:
  2. Notification no. GSR 684(E) [F.NO.4/13/2012-ECB], dated 11-10-2013
  3. RBI A.P. (Dir Series) Circular No. 69 of November 8, 2013
  4. Regulation 4 of the FCCB Scheme
  5. Regulation 5(4)(cb)
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