As one of the largest and fastest growing economies, India has been a major consumer of international financial services. The committee report set up by the Ministry of Finance, the Percy Mistry Committee Report way back in 2007 had estimated that even under conservative assumptions, purchases by Indian households and firms of IFS will be nearly $50 billion by 2015, and could exceed $120 billion by 2025. The objective was to capture the international financial service business generated from India to be undertaken from India and gradually emerge as an international financial services hub at the regional and global level. The Government of India operationalized India’s maiden International Financial Services Centre (IFSC) at GIFT Multi Services SEZ in April 2015.

The International Financial Services Centres Authority Act was passed in December 2019 and the IFSCA commenced its operation as a unified regulator in October 2020. The IFSCA has been vested with the combined powers of four domestic regulators namely RBI, SEBI, IRDAI and PFRDA and has a mandate to develop and regulate financial institutions, financial services, and financial products within the IFSCs in India. 

Two of India’s largest exchanges namely Bombay Stock Exchange (BSE) and NSE have set up international exchange and clearing corporations at GIFT IFSC. The exchanges provide more than 140 products for trading.

• India International Exchange (India INX), established by Bombay Stock Exchange (BSE) commenced trading activities on January 16, 2017.
• NSE IFSC, established by National Stock Exchange (NSE).

International Financial Services Centres Authority (Issuance and Listing of Securities) Regulations, 2021:

The International Financial Services Centres Authority (IFSCA) vide its notification no. IFSCA/2021-22/GN/REG015 dated 16 July 2021 has notified the International Financial Services Centres Authority (Issuance and Listing of Securities) Regulations, 2021. The key points of the regulation are:

Applicability

These regulations shall apply to: 

• an initial public offer of specified securities by an unlisted issuer
• a follow-on public offer of specified securities by a listed issuer
• listing of specified securities by a start-up company or an SME company
• secondary listing of specified securities
• an initial public offer of specified securities by a Special Purpose Acquisition Company
• rights issue and/or preferential issues by a listed issuer
• listing of depository receipts
• listing of debt securities
• listing of ESG debt securities
• issuance and/or listing of any other securities as may be specified by the authority from time to time.

Listing of securities

The following entities shall be eligible to list its securities under these regulations on a recognised stock exchange at IFSC:

• A company incorporated in an IFSC
• A company incorporated in India
• A company incorporated in a foreign jurisdiction

Notwithstanding sub-regulation (1) above, the following entities shall also be eligible in respect of listing of debt securities on a recognised stock exchange:

• Any supranational, multilateral or statutory organisation/ institution/agency provided such an organization/institution/agency is permitted to issue securities as per its constitution: Provided that the entity is registered or headquartered in India, IFSC or a foreign jurisdiction.
• Any municipality or any statutory body or board or corporation, authority, trust or agency established or notified by any central or state act or any special purpose vehicle notified by the state government or central government including for the purpose of raising fund by the issuer to develop infrastructure or SMART city.
• An entity whose securities are irrevocably guaranteed by a sovereign (India or a foreign jurisdiction).

Initial Public Offer (IPO) eligibility criteria

An issuer shall be eligible to make an initial public offer only if:

• The issuer has an operating revenue of at least USD 20 million in the preceding financial year,
• The issuer has an average pre-tax profit, based on consolidated audited accounts, of at least USD One million during the preceding three financial years,
• The issuer shall have commenced business at least three years prior to the date of filing of prospectus,
• Any other eligibility criteria that may be specified by IFSCA. 

Issue Size:

• The issue size shall not be less than USD Fifteen million or any other amount as may be specified by IFSCA.
• The issuer may make reservations on a competitive basis out of the issue size in favour of the following categories of persons and the same shall suitably be disclosed in the offer document, which needs to be filed to IFSCA for listing:

1. Employees;
2. Directors; and 
3. Shareholders (other than promoters and promoter group) of listed subsidiaries or listed promoter Companies.
4. The reservations referred above shall not exceed twenty percent.

Pricing:

The issuer shall determine the pricing in consultation with the lead manager(s). The issue may be through a fixed price mechanism or through book building mechanism and the same shall be suitably disclosed in the offer document.

Minimum Subscription:

For the offer to be successful, the following conditions shall be satisfied

• The minimum subscription received in the issue shall be at least seventy-five percent of the issue size; and
• The minimum number of subscribers shall be 200 or as may be specified by the Authority.

Our observations:

IFSCA through its latest set of regulations has brought in a comprehensive regulation for issuance and listing framework at the IFSC. We believe that this should help several companies to launch their primary issuances like an IPO or even modern structures like a Special Purpose Acquisition Companies (“SPAC”) to attract monies from foreign investors and non-resident Indians for listing on GIFT IFSC Exchanges. 

The latest framework has several new concepts being introduced in India (Indian IFSC) including SR shares (superior voting rights), fast-track Follow-on Public Offers (FPOs), listing of SPACs, ESG debt securities. 

This regime combined with capital gains tax exemption available in IFSC could prove to be a big draw for international investors and NRIs in participating in IPOs and trading in listed securities in the IFSC.

The eligibility criteria for IPO requires issuer should have operating revenue of at least USD 20 million in the preceding financial year and an average pre-tax profit, based on consolidated audited accounts, of at least USD One million during the preceding three financial years is a high threshold for some of the small companies. We believe that IFSCA should also deliberate on a listing regulations for SME companies and startups.