How do Indian companies list on Foreign Exchange
When a company decides to go public or dilute its equity ownership, it issues its Initial Public Offer (IPO). The purpose of this IPO is to raise capital for the expansion of the company by selling its equity shares to retail and institutional investors.
The process of issuing an IPO starts with filing a Draft Red Herring Prospectus (DRHP) by the company with the SEBI. The company has to mention several details, such as its financials for the past three years, profit and loss statements, the number of shares it wants to sell, the size of the IPO, and the exchanges or share markets where it would be listing its shares.
Usually, Indian companies look to list their securities on the two prominent domestic exchanges—The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). However, with time, companies have even started to look beyond borders to raise capital for their business.
After the central government’s order which allowed Indian companies to get listed directly on the foreign exchanges, such as the US Exchange and the European Exchange, there was a rush among the companies to list abroad. Read on to know the procedure for direct listing of Indian companies in foreign exchanges.
Learn about the ADR and GDR
Before we delve into the process of direct listing of Indian companies in the global stock markets, it is crucial to learn about the American Depository Receipt (ADR) and the Global Depository Receipt GDR). ADRs and GDRs were introduced by the Government of India to help Indian companies sell their shares in the foreign share markets or stock exchanges.
Similarly, the Indian Depository Receipt (IDR) was introduced to help foreign companies sell their stocks or shares in the Indian stock markets.
What is an ADR?
The ADR stands for an American Depository Receipt. With the help of an ADR, a company that has been incorporated in India can raise money from American investors by selling its shares on the US Stock Exchanges. Several prominent Indian companies—such as Tata Motors, ICICI Bank, Infosys, and Wipro—have ADRs in India.
An Indian ADR can be issued for a single share, multiple shares, or a fraction of shares as considered fit by the depository bank. There are two types of ADRs:
1. Sponsored ADRs
These ADRs are issued when a non-American company decides to deposit its shares to a US depository bank, which in turn, sells those shares in the US stock markets.
2. Unsponsored ADRs
These ADRs are issued when a non-American company decides to sell its share over-the-counter in the US stock markets.
What is a GDR?
The GDR stands for a Global Depository Receipt. These are the negotiable certificates issued by the depository banks, using which an Indian company can sell its shares in the global stock markets.
Direct listing of Indian companies in foreign exchanges
In 2018, the Government of India constituted a committee to discuss the direct listing of Indian companies in the foreign stock markets or foreign exchanges. Until now, the companies were allowed to sell their shares in the global markets only through ADRs and GDRs.
However, after the central government’s allowance, Indian companies can apply for their direct listing in the global stock markets. Unlike ADRs and GDRs, they can then sell their shares directly on the US Exchanges and the European Exchanges without having to deposit their shares with a foreign depository bank.
However, the committee is still working on creating the framework and guidelines for the direct listing of Indian companies in foreign markets.
At present, Indian companies can sell their shares in foreign markets only through the ADRs and GDRs. However, the Indian Government and the SEBI is working hard to create a framework for the direct listing of domestic companies in the US and European exchanges. If everything goes well, this move can benefit the companies, investors, and the government in equal proportions.
Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: firstname.lastname@example.org. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. The securities quoted are exemplary and are not recommendatory. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.