IFSCA looks to clear decks for startups' direct listing at GIFT City

The International Financial Services Centres Authority (IFSCA) has proposed key exemptions to the current listing framework and measures for setting up holding companies (holdcos) and special purpose acquisition companies (SPACs) to encourage domestic startups list at GIFT City, the country’s only international financial services centre (IFSC).

Under the current framework, to be eligible to list on IFSC exchanges, an issuing company should have operating revenue of at least $20 million in the preceding financial year and average pre-tax profits of at least $1 million during the preceding three financial years.

An expert committee has noted these conditions have acted as hurdles to listing new-age companies, and they need a relook.

“The conditions of pre-tax profits and business duration of three years may act as a significant barrier for startups established in India or outside India to get themselves listed on the IFSC stock exchange immediately,” noted the committee, chaired by G Padmanabhan, former executive director of the Reserve Bank of India (RBI), in its report titled “Onshoring the Indian Innovation to GIFT IFSC”.

“It is recommended to relax or provide certain exemptions from such conditions for the listing of (startups) in IFSC, which would allow them to raise capital from the market and can optimize cost that can provide the benefits in terms of value, quantum and quality,” it added.

The recommendations follow the announcement of Union Finance Minister Nirmala Sitharaman last month to allow direct listing of Indian companies on the IFSC stock exchanges.

At present, both the National Stock Exchange and BSE have their arms at the IFSC.

According to sources, a merger of both these exchanges’ IFSC entities is in the works.

Experts are of the opinion the move will ease procedural requirements for listing startups at the IFSC.

Notably, to facilitate direct listing by Indian startups on offshore exchanges, the committee has recommended two avenues — holdco and SPACs  — both popular globally.

While recognising the difficulties of startups in listing directly on offshore exchanges, the panel has recommended allowing unlisted Indian startups to set up holdcos in GIFT City and allow such entities to directly list their equity on certain specified offshore stock exchanges.

“Such (startups) may have the option of also listing on IFSC exchanges, but it should not be made mandatory.

"This will ensure that founders setting up in GIFT City have the same access to public capital as they would have had they set up in a foreign jurisdiction like Delaware,” said the report.

It added such a framework would ensure that intellectual property and other value will remain in India through GIFT City.

At present, domestic companies are first required to list on an Indian stock exchange and then issue American Depository Receipts or Global Depository Receipts for listing on offshore exchanges.

There have been instances of startups establishing holdcos in foreign jurisdictions and then listing on an overseas exchange.

The expert panel report also echoes the recommendations by a committee on company law in March 2022 on recognising SPACs under the Companies Act, 2013, and rationalising norms on listing through an initial public offering under the Securities and Exchange Board of India (Sebi).