FinMin allows unlisted firms to raise capital overseas

Written by ENS Economic Bureau | New Delhi | Updated: Sep 28 2013, 14:11pm hrs
Reversing an eight-year-old decision the finance ministry has allowed unlisted companies to list abroad without having to simultaneously appear in the domestic stock exchanges. The permission is likely to come in handy for infrastructure companies, including those setting up telecom towers as the domestic market has little appetite for these issues.

A ministry release noted, It has now been decided with the approval of the Union finance minister that unlisted companies may be allowed to raise capital abroad without the requirement of prior or subsequent listing in India.

The move is the latest in a series of measures to contain the current account deficit at about $70 billion in 2013-14, by opening more avenues for capital flows into the country. It has relaxed foreign investment limits and made it difficult for exporters to maintain their earnings abroad.

The new window will also benefit companies which have run up high overseas debt to retire those from the equity raised or to finance an overseas acquisition. The ministry release specifically allows the funds raised to be used for these purpose in addition to regular corporate purpose. But companies cannot keep the equity parked abroad unless they can show there is a plan to use to them for the retiring of debt or buyouts. The money will have to be remitted to India within 15 days otherwise, the rules specify.

The facility would initially be implemented on a pilot basis for two years after which it would be reviewed.

Sanjay Sharma, MD and head of equity capital markets, Deutsche Bank said it is a good move from the perspective of companies that are in high growth and niche segments. There are businesses such as internet companies and other consumer-related companies which American and European investors understand better and it is easier for them to raise funds there than in India.

Jagannadham Thunugu-ntla, equity head of SMC Capitals said companies were unlikely to rush in for such listings immediately.

The finance ministry said that unlisted firms will have to be compliant with FDI norms and would be permitted to list abroad only in exchanges that are FATF compliant or where Sebi has signed bilateral agreements.

The Rules

* The facility would initially be implemented on a pilot basis for two years after which it would be reviewed

* Companies cannot keep the equity parked abroad unless they show there is a plan to use them for retiring of debt or buyouts

* The move is likely to come in handy for infrastructure companies as the domestic market has little appetite for these issues