RBI comes out with FEMA regulations for direct listing on international exchange

Listing of an Indian company on international stock exchanges got a push with the Reserve Bank of India (RBI) coming out with regulations under Foreign Exchange Management (FEMA). Experts believe new regulations will help companies utilise foreign exchange more effectively.

Regulations have been made public through two notifications. First set of regulations deals with mode of payment and reporting of non-debt instruments. “The proceeds of purchase / subscription of equity shares of an Indian company listed on an International Exchange shall either be remitted to a bank account in India or deposited in a foreign currency account of the Indian company,” the notification said.

Further, the sale proceeds (net of taxes) of the equity shares may be remitted outside India or may be credited to the bank account of the permissible holder. Reporting about transaction in foreign exchange will be done by the investee Indian company through an authorised dealer. In case an FPI makes investment through stock exchange, the authorised dealer will report to the RBI.

The second set of regulation is related with foreign currency accounts by a person resident in India. Here, it has been said that in case the fund has been raised through External Commercial Borrowings (ECB), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) or through direct listing of equity shares of companies incorporated in India on International Exchanges but yet to be utilised or repatriated, then it will be held in foreign currency accounts with a bank outside India.

• Also read: RBI to consider relaxing FEMA guidelines for e-commerce players based on DGFT inputs

Provides flexibility

Commenting on new regulations, Manan Lahoty, Partner, IndusLaw, said that these changes remove some wrinkles and enable some important procedural aspects of such listings. “The RBI has allowed funds raised by companies to be kept in forex until they are used – this will enable such companies to efficiently use such funds for overseas acquisitions and expansions as also other forex purposes such as capex,” he said.

Nilesh Tribhuvann, Managing Partner with White & Brief – Advocates & Solicitors, said that the new provisions provide companies with flexibility in funds management depending on their operational needs and investment strategies. “This regulatory facilitation extends to the reporting requirements as well, where both transactions of FPIs on domestic and international exchanges must be meticulously reported to the RBI through designated channels, ensuring transparency and compliance,” he said.

These changes reflect a broader vision of integrating Indian businesses into the global market fabric, allowing them to compete on an equal footing, attract substantial foreign investments and contribute robustly to India’s economic stature globally. “It is essential for corporate entities to understand and align their strategies with these regulations to optimise the advantages provided, ensuring they can navigate and succeed in the complex landscape of international finance,” advised Tribhuvann.

These regulations are in follow-up to Finance Ministry’s action in January this year when it notified the ‘Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme.’ Last July, Finance Minister Nirmala Sitharaman had announced that Indian companies will soon be allowed to directly list their shares overseas. Currently, overseas listings by domestically-listed entities are carried out through ADRs and GDRs.