IFSCA’s New Listing Regulations 2024: Paving the Way for India’s Global Financial Hub

S.P. Kamrah is the Managing Partner of ‘Legal Edge’ Advocates and Consultants, New Delhi; Arya Vansh Kamrah is a 5^th year B.B.A. LL.B. (Hons.) student at Symbiosis Law School, Pune.

The International Financial Services Centres Authority (“IFSCA”) on August 20^th, 2024 introduced the IFSCA (Listing) Regulations, 2024 (“New listing regulations[HK1] [A2] ”). The New Listing Regulations attempt to redefine the listing requirements for the equity and debt instruments in the International Financial Centres (“IFSCs”). The regulations provide the eligibility criteria and guide the listing procedure for equity securities, debt instruments, depository receipts, and other financial instruments on authorised stock exchanges in India’s IFSCs. The recent legislative development by IFSCA surfaces in the wake of attracting international financial resources and trust. The New Listing Regulations are aimed at transforming India into a global financial hub by providing a more rigorous and transparent listing procedure in tandem with the international standards.

Rationale Behind the New Listing Regulations

IFSCA had issued the IFSCA (Issuance and Listing of Securities) Regulations, 2021 (“2021 Listing Regulations”), for the listing of securities by issuers in the IFSC. Although Regulation 6 of the 2021 Listing Regulations provides that Indian companies are eligible to list their securities under the general eligibility criteria, it does not provide measures for listing public Indian companies or their compliance requirements in accordance with other statutes. Moreover, the provisions of the 2021 Listing Regulations are silent on the ‘dual listing’ requirement of companies who wish to list their securities in the Indian stock exchange and IFSC. The New Listing Regulations bear a Proviso to Regulation 6, which states that the public Indian companies that wish to directly list their equity shares in IFSC shall list the same by satisfying the criteria under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and the Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024. Additionally, the New Listing Regulations cater to the existing ambiguity by providing for dual listing compliance under Regulation 42. Accordingly, such companies have to comply with additional regulatory requirements specified by IFSCA. The international market was sceptical about the 2021 Listing Regulations as they offered minimum corporate governance compliance for equity listing under Regulations 22 and 23. The New Listing Regulations address this concern by providing for IFSCA-approved credit rating agencies as a monitoring authority and diversifying the security measures to facilitate listing as per global best-practices and aligning them with international standards set by the International Organisation of Securities Commissions (“IOSCO”).

Key Features under the New Listing Regulations

Listing of Specified Securities

Under the revised regulations, the issuer is eligible for listing of non-debt securities in the following cases:

Operating revenue of USD 20 million in the past year or averaged over three years.
Profit before tax of USD 1 million in the last year or averaged over three years.
Post-issue market capitalisation of at least USD 25 million.
Any additional eligibility conditions set by the IFSCA.

The offer document must be submitted to IFCSA and include detailed disclosures to guarantee openness and give investors all relevant information. These disclosures include an offer document summary, risk considerations, and a brief description that outlines the offer information. In addition, general information, the capital structure, and issue specifications are provided. The document also discusses underwriting details, tax consequences for investors, and information about the issuer, such as financial statements and relevant linked party activities. Legal and other relevant information, as well as facts on important group companies, regulatory disclosures, and any other material information, are essential to ensure that investment decisions are made thoroughly and informedly.

The regulations further state that the minimum public holding for an Indian company must be in consonance with the Securities Contracts (Regulation) Rules, 1957 (“Rules”), and for a foreign company the minimum public holding as well as the offer need to be 10% of the post-issue capital.

Listing of Debt Instruments

In addition to the eligibility criteria mentioned for the listing of non-debt securities, the following entities may issue debt instruments in an IFSC:

Multi-National Corporations (“MNCs”) or statutory institutions
Municipality or similar bodies
Entities dealing in sovereign debt instruments

The issuer must submit a listing application together with the prospectus or information memorandum (“IM”) to the authorised stock exchange.

The framework also provides for issuer disclosure and other disclosures in accordance with Regulation 70 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 (“SEBI LODR”). The issuer must receive a credit rating from at least one IFSCA-registered Credit Rating Agency (“CRA”) and may obtain supplementary ratings from globally acknowledged CRAs. Furthermore, the regulations include additional criteria for listing ‘Green’, ‘Social’, ‘Sustainability’, and ‘Sustainability linked’ debt securities. The standards align with international standards, notably the International Capital Market Association (“ICMA”) and Climate Bonds Standards.

Continuous Obligations and Disclosure Requirements
Equity Listing: Equity listings require issuers to disclose material or price-sensitive information, amendments to constitution documents, board meeting notices, Annual General Meetings and Extraordinary General Meetings proceedings, changes in key personnel, and adverse auditor opinions immediately. Encumbrances must be disclosed within two working days, shareholding patterns must be reported quarterly within 15 working days, and financial statements must be due quarterly within 45 days and annually within three months. A sustainability report must be due within six months of the financial year-end, and notices of record dates must be given three working days in advance. A whistleblower mechanism is also required.
Debt issuers must disclose price-sensitive information and credit rating revisions promptly, with financial statements and annual reports submitted within three and six months, respectively, to maintain trust and transparency in the market.

Analysing the Impact of the New Listing Regulations

Non-Debt Securities

The updated criteria for listing non-debt securities under the New Listing Regulations are rigorously intended to guarantee that only financially sound and sustainable businesses have direct access to the market. Requiring high operational revenue, the criteria of a profit before tax of USD 1 million with additional parameters to ensure sound financial position is likely to strengthen the trust of international investors.

Furthermore, the disclosure standards for this category significantly increase transparency and market visibility. The meticulous requirements not only boost investor trust but also contributes to market integrity by holding issuers responsible for high disclosure requirements, resulting in a more stable and predictable investing environment.

Additionally, the Ministry of Finance on 28^th August 2024 [HK3] [A4] announced a ground-breaking amendment to the Rules that would allow the Indian public companies to list on the IFSC exchanges in an effort to increase international investment in Indian enterprises. The new rules require public Indian businesses that wish to list primarily on foreign exchanges in IFSCs to make a minimum offer and allocation to the public of at least 10% of the post-issue capital, as specified in the prospectus. The continuing listing criterion for such corporations has likewise been set at 10%, as stipulated in Rules 19(2)(b) and 19A of the Rules.

Debt Securities

The New Listing Regulations for debt securities in IFSC expand the range of issuers by allowing MNCs, statutory institutions, and municipalities to gain access to foreign investments. This change is likely to increase market liquidity by potentially attracting diverse investments. However, inclusion of such entities creates hurdles for regulatory oversight as these entities may differ in terms of structure, composition, and financial stability.

Obtaining a credit rating issued by an IFSCA-registered CRA, with the possibility of supplemental ratings from globally recognised CRAs, provides investors with an additional degree of assurance. The inclusion of several criteria for listing debt instruments is a positive move, in line with worldwide standards such as ICMA.

On the contrary, it may limit issuer flexibility, particularly for organisations used to varied rating standards. While the New Listing Regulations promote credibility and international competitiveness, it also sets onerous criteria that may be difficult for issuers to achieve, especially those new to sustainable financing.

Way Forward

The strict disclosure rules for equity offerings are intended to enhance accountability and investor safety by requiring rapid reporting of major events and frequent updates on financial health and governance developments. However, the vast scope and frequency of these disclosures may place a major compliance burden on issuers, diverting resources away from key business operations. While, the focus on timely disclosure of price-sensitive information and credit rating updates promotes market integrity, the extended deadlines for financial statements and annual reports may cause investors to miss out on essential details, which could impact their decision-making process and market confidence.

Recommendations and Conclusion

The New Listing Regulations of IFSCA are a welcome step towards regulation of the listing procedure and eligibility in IFSCs like the Gujarat International Finance Tec (GIFT) city in India. The regulations have been modified in a way that will tap more foreign investments and incentivise direct listing in IFSCs. The regulations have been well-designed to adapt to international best practices under the listing requirements of both equity and debt securities. The New Listing Regulations are observed to be a forward-looking change because they clearly state the continuous obligations and disclosure requirements. The success of the relevant regulations, however, will be contingent upon the flexibility in implementation and the needs of the issuers and investors. IFSCA can further implement certain changes to remove doubts on the efficacy of the listing procedures.

In order to enhance the efficiency of the IFSCs, the government can allow start-ups and companies with small public holdings but high projected growth rates to benefit from directly listing securities and non-debt instruments in the IFSCs. This will ensure that enterprises involved in the area of technology development and innovation are catered to. Moreover, the complex listing compliance for the foreign companies mentioned under the revised framework can be better adjusted with the global standards or even be approved on the basis of the compliance of such companies under their respective local laws to assuage the compliance burden. Additionally, the need for credit ratings from IFSCA-registered agencies, while ensuring quality, could be broadened to include more globally recognised CRAs to strengthen investor trust and market oversight. These refinements will strengthen the framework and ensure dynamism in the functioning of IFCs.