This Article is authored by Suman Kumar Jha (Founder & Managing Partner), Afnaan Siddiqui (Co-Founder & Partner), Visakha Raghuram (Associate), Akshita Varshney and Ankit Abhishek Jha
INTRODUCTION
India’s first International Financial Services Centre located at GIFT City (‘GIFT IFSC’) has been very active in developing a robust regulatory framework for raising of finance by Indian companies from foreign entities. The sole regulatory authority having jurisdiction over the GIFT IFSC i.e. the International Financial Services Centre Authority (‘IFSCA’) has introduced a unified framework for listing of securities by Indian Companies, thereby opening significant opportunities, to access a large pool of foreign capital.
The expert committee recommended that IFSCA’s regulatory framework should be aligned with other international financial centres. In line with such recommendations, it was decided to replace the existing IFSCA (Issuance and Listing of Securities) Regulations, 2021 with the IFSCA (Listing) Regulations, 2024 (‘New Listing Regulations’). The IFSCA in its meeting held on June 27, 2024, approved the New Listing Regulations and this framework became operational on August 30, 2024, for a listing of securities on the two Stock Exchanges in GIFT City i.e. India International Exchange and NSE IFSC Limited, providing a fillip to the securities market in the IFSC. This Framework simplifies access to capital markets for both Indian and Foreign issuers, promoting greater flexibility and efficiency.
MANDATORY REQUIREMENTS FOR LISTING ON RECOGNISED STOCK EXCHANGES ON GIFT IFSC
The New Listing Regulations cover the listing modalities of multiple securities such as equity shares, convertible securities, debt securities, depository receipts and ESG Labelled Debt Securities. Listing of other financial products such funds or investment trusts, commercial papers, certificates of deposit or any other financial products are subject to the conditions specified by the IFSCA. It is expected that the IFSCA may issue regulations for listing of such other financial products in the future.
To be eligible for listing, interested companies must have recorded an operating revenue of at least $20 million in the previous financial year or averaged that amount over the past 3 years.
Additionally, they must have a pre-tax profit of at least $ 1 million and a minimum post-issue market capitalization of $ 25 million, according to the new norms.
The pricing of securities shall be determined by the lead manager through fixed price or book building process which shall be disclosed in the offer document.
Entities already listed in India in national or regional stock exchanges may list its securities in GIFT City through Offer for Sale or Qualified Institutional Placement mode. Such domestically listed companies may list their securities with or without a public offer.
Further, a novel provision in these New Listing Regulations is that supranational, multilateral or statutory institutions, municipalities or any other similar body or an entity which offers or proposed to offer sovereign debt securities are eligible to list their debt securities on IFSC stock exchanges. This opens avenues for these bodies to raise finance from multiple sources and provides liquidity to their securities which is otherwise not available in other national or regional stock exchanges.
OFFER DOCUMENT DISCLOSURES AND TIMING
Companies will be required to file the Draft Offer Documents with the IFSCA for seeking observations. Prior to the New Listing Regulations, the IFSCA was obligated to issue observations on the draft offer documents within 30 (thirty) working days. However, upon introduction of the New Listing Regulations, this duration has been revised to 21 (twenty one) working days.
An offer shall be made by the issuer within a period of a maximum of 12 (twelve) months from the date of issuance of observations by the IFSCA.
Further, the New Listing Regulations provide that if the proposed size of the issue is USD 50 million or less, the 12-month period shall commence from the date of receipt of the offer document by the IFSCA. In case, the offer is not made within the specified period, a fresh offer document must be submitted to both the IFSCA and the stock exchanges.
Regulation 16(4) prescribes various disclosures which must be made in the offer document such as overview of the issue, general information, capital structure, risk factors, tax implications, underwriting, legal and regulatory information, financial statements, material related party transactions, etc. At the time of giving the disclosures in the Offer Document, the issuer shall provide the details of its “materiality policy” wherever possible, in the offer document and ensure that all material information is disclosed post-filing of the offer document and before listing of the securities.
The issuer is required to disclose its audited financial information covering a minimum of 3 (three) financial years in the offer documents. In case the issuer is a newly incorporated company in existence for less than a year, the financial information provided by it shall be audited. The financial information provided in the Offer Document must not be older than 135 (One Hundred and Thirty Five) days.
It is worth noting that the issuer must prepare its financials in accordance with the International Financial Reporting Standards (‘IFRS’) or US generally accepted accounting principles (US GAAP) or Indian Accounting Standards (Ind AS) or other accounting standards as may be applicable. Therefore, Indian issuers will need to take this requirement into consideration before undertaking such issue and listing and plan accordingly.
MONITORING AGENCY
According to the New Listing Regulations, the issuer has the option to appoint a credit rating agency that is registered with the Authority or a globally recognized credit rating agency that is registered with a regulatory body in India or a foreign jurisdiction. This agency will act as a monitoring agency to oversee the use of proceeds from the issue, and within 45 days from the end of each quarter, the issuer will publicly disseminate the report by the monitoring agency by uploading it to the website and submitting it to the exchanges in GIFT IFSC.
PRICE STABILISATION THROUGH GREEN SHOE OPTION
An issuer has the liberty to provide a green shoe option to stabilize the post-listing price of its specified securities. Apart from the condition of disclosure of material details of such green shoe option in the draft offer document, the issuer also must have appointed an investment banker or a broker dealer who is registered with the IFSCA as a stabilising agent. The New Listing Regulations provide that, the price stabilization process can only be available for a period of up to 90 (ninety) days from the date of obtaining trading permission from the recognized stock exchange. It also contains multiple modalities of the price stabilisation mechanism that must be adhered to.
LISTING OF SPECIAL PURPOSE ACQUISITION COMPANIES (SPACS)
Special Purpose Acquisition Companies (‘SPACs’) are companies having no operating business and formed to effectuate a business combination, such as a merger, amalgamation or acquisition of shares of companies having business operations. A SPAC’s sole purpose is to raise capital through an initial public offering (‘IPO’) to later identify and acquire a target company, allowing it to go public without undergoing the traditional IPO process.
Eligibility
A SPAC is eligible to raise capital through IPO on the recognised stock exchange, subject to the fulfilment of these eligibility conditions:
- Target business combination has not been identified before the IPO.
- SPAC has provisions for redemption and liquidation in accordance with the New Listing Regulations.
- The sponsor of SPAC has a good track record in SPAC transactions, business combinations, fund management or investment banking activities.
IPO Process
The IPO process prescribed for companies listing their specified securities will also apply to IPOs by SPACs.
Offer Completion
Offer must be made within 12 (twelve) months from the date of issuance of observations by IFSCA.
Issue Size
- SPACs must raise at least USD 50 (fifty) million through such IPO.
- Sponsor must own at least 15 (fifteen) % and not more than 20 (twenty) % of post-issue paid-up capital.
- The sponsor must have an aggregate subscription in SPAC of USD 10 (ten) million or at least 2.5 (two and a half) % of the issue size, whichever is lower, before the IPO.
Offer Period
IPO shall be kept open for at least 1 (one) Working day and not more than 10 (ten) working days.
Application Size
Minimum of USD 100,000 (One Million)
Changes in New Regulation
It is worth noting that the IFSCA (Listing) Regulations, 2024 has removed the requirement for a minimum price of USD 5 per share in a SPAC IPO. The offer period has been shortened from a minimum of 3 (three) working days to just 1 (one) working day. The requirement for a minimum subscription of 75% (seventy-five percent) of the issue size and a minimum of 50 (fifty) subscribers have also been omitted under the New Listing Regulations.
SPAC Specific Obligations
The issue proceeds must be kept in an interest-bearing escrow account controlled by an independent custodian till the business combination is completed which may be invested only in short-term investment grade liquid instruments. Any interest or other income derived from such escrow account can only be used for payment of taxes or general working capital expenses
The SPAC shall seek prior approval of majority shareholders to effectuate the business combination and shall provide redemption right to the dissenting shareholders on a pro rata basis. SPACs are mandated to complete the business combination within a period of 36 (thirty six) months, else the escrow account shall be liquidated and specified securities shall be delisted.
A sponsor’s holding is subject to lock-in prior to the completion of a business combination as well as one year after its completion. The holdings of controlling shareholders, directors and key managerial personnel are also subject to lock-in period of one year.
ESG LABELLED DEBT SECURITIES
ESG-labelled debt securities are the debt instruments issued with a focus on green, social, and sustainability. These securities are designed to fund projects or initiatives that have a positive impact on environmental, sustainability or social development. Another imported precondition to be qualified as an ESG Labelled Debt Security is that proceeds must be proposed to be utilised for financing or refinancing projects and/or assets aligned with International Capital Market Associate Principles, Climate Bonds Standards, ASEAN Standards, European Union Standords or any other framework or methodology specified by a competent authority or a financial sector regulatory in India or any other international standards permitted by the Authority.
Chapter X of the New Listing Regulations cover Environment, Social and Governance (ESG) labelled Debt securities.
It is worth noting that an external reviewer must be appointed to ascertain that such securities are aligned with the above mentioned standards. Issuers must disclose their ESG objectives, the process for project selection, proposed use of proceeds and mechanism for tracking of such use in their offer documents and provide annual post-issuance reporting on the allocation of proceeds and project impact to the recognised stock exchanges.
DISCLOSURE REQUIREMENTS
Similar to SEBI (LODR) Regulations, 2015, a company listed on IFSC Stock exchange is required to frame a materiality policy and disclose material events promptly, no later than 24 (twenty-four) hours.
The New Listing Regulations introduce two additional events that require listed entities to provide prior intimation to the recognized stock exchange regarding board meetings. These include:
(a) any material business events such as acquisitions, mergers, demergers, or the sale or purchase of assets, businesses, or companies, and
(b) any material litigation that could significantly impact the company’s financial position or operations.
The New Listing Regulations have also revised the timeline for submitting the shareholding pattern. Previously, listed entities were required to submit the shareholding pattern within 21 (Twenty One) days after the end of each quarter; Under the New Listing Regulations, this must now be submitted within 15 (Fifteen) days.
Also, the listed entity is now required to disclose its audited financial statements for the full financial year to the recognized stock exchange immediately after approval, but not later than three months after the financial year ends. Such financial statements must be prepared in accordance with IFRS or US GAAP or Ind AS or other accounting standards as applicable in its home jurisdiction. Previously, the submission deadline was within six months. Previously, Start-up and SME companies were required to submit a statement of deviation or variation on a half-yearly basis; However, under the New Listing Regulations, they are now required to submit it on a quarterly basis.
The New Listing Regulations has shifted the authority to prescribe standards for sustainability reporting from the Ministry of Corporate Affairs (MCA) to the International Financial Services Centres Authority (IFSCA). Entities listed in IFSCs are obligated to prepare a sustainability report based on internationally accepted reporting standards such as Global Reporting Intiative, International Sustainability Standards Board, Task Force on Climate-related Financial Disclosures or Business Responsibility and Sustainability Reporting.
Additionally, disclosures pertaining to annual reports, corporate actions, shareholders’ meeting, whistle blower mechanism is mandatory. Maintenance of website by such listed entity, containing its basic information is also an important obligation under the New Listing Regulations.
CONCLUSION
The New Listing Regulations make it easier for Indian companies and startups to raise money from international investors, attract more foreign investment to India and solidify GIFT City’s position as a global financial hub.
While there are similarities between the New Listing Regulations and SEBI Regulations pertaining to issue and listing of securities, certain new provisions with respect to listing of units by SPACs and listing of ESG Labelled debt securities have been introduced to cater to the different needs in the funding world. This shows India’s commitment to sustainable finance and is in line with the vision of making GIFT City a major international financial center, at par with its international counterparts and promote growth and innovation in the financial services industry.