India allows unlisted firms to directly raise funds abroad

The government on Friday modified FDI policy allowing unlisted companies to directly list on stock exchanges abroad to raise funds for acquisitions or retiring overseas debts, a move which may help India in containing high current account deficit.

As of now, unlisted companies are not allowed to directly list in overseas markets without prior or subsequent listing in Indian markets.

"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.

Necessary changes have been made in the 'Consolidated FDI Policy' in this regard. 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 SEBI 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, it said, the company should repatriate the funds to India within 15 days and park it with a scheduled bank and "may be used domestically".

While raising funds abroad, the listing companies would have to be fully compliant with the FDI policy. The Reserve Bank 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 fiscal, as against $88.2 billion in the last financial year.

Rupee value versus US dollar has been affected severely because of high CAD and other global factors. RBI has said that ADRs/ GDRs should be issued subject to sectoral cap, 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 determined in accordance with the FEMA norms, it added.