The government has modified the country's foreign direct investment (FDI) policy to allow unlisted companies to directly list on stock exchanges abroad to raise funds for acquisitions or for retiring overseas debt.
As of now, unlisted companies are not allowed to directly list in overseas markets without prior or subsequent listing in Indian markets. The relaxation of the rules is expected to help in containing India's high current account deficit (CAD).
"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," the Department of Industrial Policy and Promotion (DIPP) said in a notification. The necessary changes have been made in the 'Consolidated FDI Policy'.
Unlisted companies can directly list abroad only on exchanges in International Organisation of Securities Commissions (IOSCO)/ Financial Action Task Force (FATF) compliant jurisdictions or those jurisdictions with which the Securities & Exchange Board of India has signed bilateral agreements.
"The capital raised abroad may be utilised for retiring outstanding overseas debt or for operations abroad including for acquisitions," the revised FDI policy said.
In case the funds raised are not utilised abroad, the company should repatriate the funds to India within 15 days and park them with a scheduled bank, and these "may be used domestically".
While raising funds abroad, the listing companies would have to be fully compliant with the FDI policy.
The Reserve Bank of India (RBI) has already issued a notification in this regard.
The listing company would also have to comply with the instructions on downstream investment and the criteria of eligibility of who can raise funds through ADRs/GDRs would be as prescribed by the government.
The scheme will be implemented on a pilot basis for a period of two years.
The government aims to bring down the CAD to below $56 billion this financial year, as against $88.2 billion in the last financial year.
The rupee has eroded severely against the dollar because of high CAD, among other factors.
RBI has said that ADRs/ GDRs should be issued subject to sectoral caps, entry route, minimum capitalisation norms and pricing norms as applicable as per FDI regulations.
The pricing of such ADRs/GDRs to be issued to a person resident outside India would be determined in accordance with the Foreign Exchange Maintenance Act.