Tapping New Pool of Investors- How Far Will Jio Platforms Go?

Earlier this year, there were reports suggesting that the Government will allow direct listing of Indian companies abroad. There has been no formal announcement by the Government in this regard, apart from snippets on policy intent, like the Companies Amendment Bill, 2020, which includes provisions for Indian companies to directly list it’s securities on overseas stock exchanges.  

Why this few months old news, will now suddenly gain traction? The sole reason is again, Asia’s richest man, Mr. Mukesh Ambani and Reliance. Latest reports suggest that Reliance Industries Ltd. has already started working on overseas listing of Jio Platforms. 

Just to give you a quick flavour of the current Indian regulatory regime in relation to overseas listing: 

• Indian companies can opt for the depository receipts route to get on board global investors, by listing American Depository Receipts (ADRs) and/or Global Depository Receipts (GDRs) abroad; and 
• This flexibility is only available to the companies which are already listed on Indian stock market.

Unlike direct listing, depository receipts are securities listed overseas against the shares of a listed Indian company. The ADR/GDR route has been explored by a very select Indian companies, including Infosys, ICICI Bank, HDFC, Bank, and Reliance Industries. In the recent years, this route has become unpopular.  

In my personal view, if Reliance is looking to list Jio Platforms in the next 12-24 months, then we should expect the policy on direct offshore listing, much sooner than we all anticipated. In the event, the Government decides to allow offshore listing of Indian companies, several existing laws and regulations will have to be amended, including the foreign exchange regulations, SEBI regulations and companies act. It will be interesting to see the extent of flexibility and conditions, which the new offshore listing regulations will provide:

• Whether this option will be limited to only listed companies, or unlisted Indian companies will also have the flexibility to directly list offshore? 
• In the event, unlisted companies will be allowed to list offshore, will Indian residents have the option to invest and trade? This is a critical question, as Indian residents will not have the right to trade in India as the shares of such unlisted company will not be available for trading on Indian stock market.
• Will direct listing be allowed in all jurisdictions or limited jurisdictions? Will China be there in the permitted jurisdiction? The SEBI panel in 2018 had included China in the list of permitted jurisdictions. 
• Will such unlisted Indian companies (which are listed offshore, if permitted) be considered as deemed listed for the purposes of Indian regulations? To what extent SEBI will be able to regulate such unlisted companies? 
• What kind of eligibility criteria will be there for Indian unlisted companies to be listed abroad? How will the financial stability be judged? 
• Which accounting standards such companies will have to follow? 
• How will the issue of capital gains on share transferability be viewed by the Government?

Just to give a holistic view on the offshore listing issue, certain Indian companies have tried to explore novel ways of listing Indian unlisted companies in past. As an alternative to ADR/GDR route and direct offshore listing (if allowed), companies may create a parent company offshore and list it outside India. However, such an option will not work for Reliance, for the purpose of listing Jio Platforms. In any event, such cute-structuring has its own legal complexities and tax issues. 

There’s no doubt that the Government will be able to clarify all the above questions in the proposed policy change/relevant amendments. The critical question still remains; how will RBI and the Government manage the issue of volatility? It’s a no brainer, that direct offshore listing will result in huge capital-inflow into India. 

Are we moving towards fuller capital account convertibility? 

Also, the need for such an early preparation by Reliance for offshore listing of Jio Platforms, within days of attracting more than USD 10 billion investment, suggests the financial investors may have a short term investment horizon.

On a lighter note, I am not just surprised, but flabbergasted :)