In a bid to attract both Indian and foreign companies to list in the international stock exchanges at GIFT City, Gandhinagar (Gujarat), the finance ministry has reduced the minimum public float requirement to 10 per cent from 25 per cent.
The ministry amended the Securities Contracts (Regulation) Rules on Wednesday to facilitate the reduced norm.
The move is expected to especially enable Indian startups and unicorns to access a larger pool of foreign capital, experts said.
Startups in the technology and other emerging sectors can target direct listing in the bourses at GIFT City, which is the country’s sole international financial services centre (IFSC), they added.
In January, the finance ministry had allowed domestic public companies to issue and list shares directly in global stock exchanges operating in GIFT City.
Currently only foreign investors and non-resident Indians can undertake share transactions on the IFSC exchanges.
On the latest relaxed public float norm, Mayank Arora, Director-Regulatory, Nangia Andersen India, said, “The amendment has been brought about to encourage Indian and foreign companies to list their securities in stock exchanges located in IFSC, mandating lower dilution of ownership.”
It has carved out special provisions for securities listed on recognised stock exchanges, he said.
Companies exploring listing of securities usually consider factors such as liquidity, regulatory environment, cost of listing, and visibility, among others.
Mohit Chaudhary, Managing Partner, Kings & Alliance LLP, said that by reducing the mandatory public offering to 10 per cent in a deemed foreign jurisdiction at IFSC bourses [Gift City], the Central government aims to accomplish two objectives.
“One is to encourage more entities to list themselves on the IFSC, as it enables them to retain control of their company while attracting public capital. Additionally, to incentivise foreign investors, thereby boosting foreign exchange inflows, while such investors can consolidate their positions,” he said.
However, on the flip side, a reduction in public float would leave fewer shares for the public, which can have several implications for a stock, he noted.
These include volatility, as even a single trade would cause greater impact on the price of smaller float stocks.
• Institutional investors, insurance companies, mutual funds, pension funds avoid trading in companies with smaller floats as their large purchases don’t impact the share price as much.
• Smaller float can be more vulnerable to pump-and-dump schemes because of their susceptibility to price manipulation.
Kartik Ganapathy, Founding Partner, INDUSLAW, said the amendments appear to target higher fund raise from institutional investors, by lowering the threshold of shareholding offered to the public.
This is an attempt to increase the attractiveness of listing in an IFSC (currently only GIFT City), he said.
Manmeet Kaur, Partner - Karanjawala & Co. said this should be a positive step towards enhancing the attractiveness and competitiveness of financial market in India, and smaller companies, including start-ups may also benefit. However, it is important to balance this relaxation with robust regulatory measures to ensure that corporate governance and market stability are kept in check.
Vivek Boray, Partner, King Stubb & Kasiva, Advocates and Attorneys, said “This amendment is an exciting development as it provides growing ventures with greater flexibility and access to different sources of capital and should add to increased attractiveness for global capital to invest in the Indian capital markets.”