Lifeline will help companies repay foreign debt, fund overseas acquisitions
The Government has lifted the curbs that prevented unlisted Indian companies from raising funds abroad.
Such companies can now list on foreign bourses without doing so in the domestic market.
The move will help corporate entities pay overseas debt as well as acquire companies abroad, without buying dollars at home.
Unlisted companies are those whose shares are not traded on stock exchanges. Before August 31, 2005, such companies were permitted to tap the overseas markets and get listed without any prior or subsequent listing here. Companies such as Sify and Rediff listed on American exchanges using this route.
After the curbs were imposed, some companies, such as online travel agency MakeMyTrip.com, set up a subsidiary abroad to raise funds and got that entity listed.
On Friday, the Finance Ministry said that the option to list abroad will initially be available for two years, on a pilot basis.
The Ministry has set some conditions for the use of this facility. One requires such companies to file a copy of their financial statements with domestic regulators. They will also have to be compliant with rules governing foreign investments by Indian companies.
Dhirendra Kumar, MD of investment research firm Value Research, termed the Finance Ministry’s move as correcting an anomaly.
Anish Thacker, Tax Partner with EY, said the measure will allow Indian firms access overseas capital markets and possibly reduce their offshore interest burden. “Some safeguards and conditions have also been cited, which are understandable,” he added.
Mayuresh Joshi, Vice-President, Angel Broking, said the proposal will benefit companies that have significant overseas operations and that have taken on foreign debt to fund those businesses.
It will assist them in bridging the volatility in currency movements.
“Statistically, India’s external debt stands at $390 billion, of which, short-term debt (including residual maturity) stands at $172 billion. In a scenario of extreme rupee depreciation, such short-term debt adds to the interest-servicing pain of most corporates that have borrowed abroad,” he explained.
Keywords: Unlisted companies, listing in overseas markets, listing abroad, raising capital abroad, capital-raising, The International Organization of Securities Commissions, Financial Action Task Force, dollar inflows,