Listing of Overseas Bonds in India – GIFT City and Benefits to Indian Issuer
Vidisha Krishan and Sonam Daswani of M V Kini & Co consider GIFT City, a financial gateway for inbound and outbound investments.
Introduction
Gujarat International Financial Tech-City (“GIFT City”), a development by the Government of Gujarat with the support of the Government of India in 2015, is a financial gateway of India for inbound and outbound investment. GIFT City evolved with the vision of becoming a leading global financial and technology hub.
The International Financial Services Centres Authority (IFSCA) was established on 27 April 2020, under the International Financial Services Centres Authority Act, 2019 (the “Act”). It is headquartered at the GIFT City.
As the dynamic nature of business in the International Financial Services Centres (IFSCs) requires a high degree of inter-regulatory co-ordination within the financial sector, the IFSCA has been established as a regulator with a holistic vision in order to promote ease of doing business in IFSCs and provide a world-class regulatory environment. The main objective of IFSCA is to develop a strong global connect and focus on the needs of the Indian economy as well as to serve as an international financial platform for the entire region and the global economy as a whole.
The Act shall apply to the International Financial Services Centres set up under Section 18 of the Special Economic Zones Act, 2005. The central government from time to time may notify which services are included within the ambit of financial product, service and institution.
“GIFT City evolved with the vision of becoming a leading global financial and technology hub.”
Highlights of Relevant IFSC Regulations With Respect to Capital Markets
The Securities and Exchange Board of India (International Financial Services Centres) Guidelines, 2015 (the “SEBI (IFSC) Guidelines, 2015”) are applicable to any entity wishing to organise or assist in organising any stock exchange or clearing corporation or depository, or wishing to undertake any other financial services relating to the securities market.
“Permissible Securities”, as provided under Clause 7 of the SEBI (IFSC) Guidelines, 2015, are as follows:
- equity shares of a company incorporated outside India;
- depository receipt(s);
- debt securities issued by eligible issuers;
- currency and interest rate derivatives;
- index-based derivatives; and
- such other securities as may be specified by the Board (SEBI).
The IFSCA (Issuance and Listing of Securities) Regulations, 2021 (the “IFSCA (ILS) Regulations, 2021”) permit the following entities to be eligible to list their securities under the regulations:
- a company incorporated in India; and
- a company incorporated in a foreign jurisdiction.
Apart from the above-mentioned entities, the following entities are permitted to list their securities:
- an entity that is a supranational, multilateral or statutory organisation/institution/agency provided that it is permitted to issue securities and is registered or headquartered in IFSC, India or a foreign jurisdiction;
- a municipality/statutory body/board/corporation/authority/trust/agency/special-purpose vehicle that is established or notified by any central/state act to raise funds by the issuer to develop infrastructure or SMART city; and
- an entity whose securities are irrevocably guaranteed by an Indian or foreign sovereign.
Compliance
By an Indian company
As per Clause 10(1) of the SEBI (IFSC) Guidelines, 2015, domestic companies intending to raise capital, in a currency other than Indian rupee, in an IFSC must comply with the provisions of the Foreign Currency Depository Receipts Scheme, 2014 notified by the Government of India on 21 October 2014. Apart from this, the company must also comply with the provisions of the Companies Act, 2013 and the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Guidelines, 2018 (the “SEBI (ICDR) Guidelines, 2018”).
By a foreign company incorporated outside the country, but with bonds listed in IFSC
As per Clause 10(2) of the SEBI (IFSC) Guidelines, 2015, companies incorporated in a foreign jurisdiction, intending to raise capital, in a currency other than Indian rupee, in an IFSC must comply with the provisions of the Companies Act, 2013 and the relevant provisions of the SEBI (ICDR) Regulations, 2018 as if the securities are being issued under the Chapter Initial Public Offer of Indian Depository Receipts and Rights Issue of Indian Depository Receipts as and when amended.
International Bonds Listing Benefits
International bonds are an alluring way to invest in the GIFT city. They are one of the principal means through which an investor seeks to achieve their requisite goals. The benefits that an investor and the issuer would get in the GIFT City under the IFSC are as follows.
Fiscal benefits of IFSC
- Income tax benefits
To issuers: 100% tax exemption for 10 out of 15 years; the issuer is free to select any 10 years out of the 15-year block.
To investors: non-residents get paid interest income on money lent to IFSC, rupee denomination bonds, long-term bonds.
- GST benefits
To issuers: no GST on services received by unit in IFSC, services provided to IFSC/SEZ/Offshore clients.
To investors: no GST on transactions carried out in IFSC exchanges.
- Other taxes and duties
To issuers: state subsidies.
To investors: various exemptions such as security transaction tax, commodity transaction tax, stamp duty on IFSC transactions.
Other benefits to the issuer of IFSC
- State-of-the-art infrastructure.
- Low operating costs.
- Singapore International Arbitration Centre as an institution for international dispute resolution.
- Strong regulatory and legal environment.
- Banks, insurance, capital markets, law firms and consultancy firms all work in an integrated ecosystem.
- Transparent operating environment.
- Skilled professionals.
- Latest transport, communications and internet infrastructure.
At present, Indian companies are allowed to raise foreign currency by issuing debt securities (foreign currency bonds, masala bonds, green bonds).
SEBI allowing Indian companies to list their equity shares directly on overseas stock exchanges is a propitious step. It will motivate domestic companies through improved liquidity, increased visibility in foreign markets and aiding acquisitions in the host market.
M V Kini
