LISTING IN USA INDIAN PERSPECTIVE, STRUCTURING AND LEGAL REQUIREMENTS
LISTING IN USAINDIAN PERSPECTIVE, STRUCTURING AND LEGAL REQUIREMENTS By Alpha Partners Indian Habitat Centre January 24, 2013
SOURCE OF FUNDING PRIVATE EQUITY Vs. LISTING BANKS Vs. LISTING EASY EXIT ROUTE
1. Access to New and Incredibly deep capital.2. Increased Liquidity and broad investor base.3. Brand building and wide media coverage.4. Currency for acquisitions.5. Benefits to employees.6. New growth opportunities.7. Surreal spike in valuation.(Historically firms listed in the U.S. have a Tobin’s q ratiohigher than the firms from the same country that do not list inthe U.S.)8. Lowered cost of capital.9. Additional Visibility, Exposure and Prestige.10. Negligible Red tape, Corruption and Administrative andLegal hassle.11. Enhanced protection to Investors.
The Flip Side1. Stricter Disclosure and Compliance Requirements.2. Loss of privacy.3. US $ Fluctuation Factor.4. Risk exposure.5. Costs
ENTRY NORMS1. The minimum post-issue paid-up capital to be Rs. 10 crore for IPOs and the minimum issue size shall be Rs. 10 crore;2. The minimum market capitalization shall be Rs. 25 crore;3. Distributed profits in terms of section 205 of the Companies Act, 1956, for at least three out of the immediately preceding five years;4. In-principle approval from recognised stock exchanges.5. The above eligibility criteria would be in addition to the conditions prescribed under the following: a. SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009; b. Securities Contracts (Regulations) Act 1956; c. Securities Contracts (Regulation) Rules 1957; d. Securities and Exchange Board of India Act 1992; e. Companies Act 1956; f. and any other circular, clarifications, guidelines issued by the appropriate authority.
COMPANIES ACT, 1956 FOREIGN EXCHANGE MANAGEMENT ACT FOREIGN DIRECT INVESTMENT POLICY OVERSEAS DIRECT INVESTMENT POLICY FCCB SEBI ACT AND REGULATIONS INCOME TAX ACT, 1961 LISTING AGREEMENTS
HOLDING COMPANY STRUCTURE FUND STRUCTURE AMERICAN DEPOSITORY RECEIPTS
Listing on NYSE US Z US Co. Holding Company Tax Haven IndiaPromoter(s) A India Pvt. Ltd.
Listing on NYSE US Issuer Company Tax Haven for US Holding Asset Company Manager Tax Haven (MU, SG) IndiaAdvisorycompany Asset/ Asset/ Asset/ Asset/ entity entity entity entity
Frequently Asked Questions• Q. Can Promoter(s) hold more than 55% of the US Co.?Ans: Yes.• Q. What is the minimum public holding requirement?Ans: There is no minimum public holding requirement.• Q. Are there any requirements regarding % of return/dividend tobe paid to the investors?Ans: No.• Q. In case the promoters wish to acquire 100% shareholding of theUS Co. at a future date, what factors are to be kept in mind?Ans: As with any acquisition, this must be negotiated with theshareholders of the company. There are certain filings that have tobe made with the Securities and Exchange Commission andPromoters must also comply with state law.
Work Required• Full Business Plan in English;• Historical and pro forma financials in U.S.dollars;• Corporate History, i.e. minutes, resolutions;• Shareholder list;• PCAOB audit from a reputable auditing firm.• Corporate restructuring on the India side.
Due Diligence Checklist1. Business Plans and Projections2. Organization and Capitalization of the Company3. Financial Information4. Loan Documents5. Officers, Directors and Employees6. Business Products and Services7. Public Relations/Advertising8. Property9. Securities10. Litigation11. Corporate History12.Patents and Trademarks13. Bankruptcy Proceedings14.Other Agreements, Sales records etc.
Who can issue Company registered under the Companies Act, 1956 Companies restrained from access to capital markets by SEBI not permitted Unlisted companies not permitted unless they go for prior or simultaneous listing subjc to approval of SEBI specifying the % offered in ADR issue Erstwhile OCB’s not permitted
Pre-requisites Prior permission from the Department of Economic Affairs, Ministry of Finance, Government of India Compliance with extant FDI policy and FEMA Schedule I provisions Consistent track record of minimum 3 years Aggregate foreign investment made either directly or indirectly not to exceed 51% of the issued and subscribed capital of the issuing company (except FII investment). There is no monetary limit up to which an Indian company can raise ADRs / GDRs.
Deployment of funds and use of funds The proceeds so raised have to be kept abroad till actually required in India; Pending repatriation or utilization of the proceeds, the Indian company can invest the funds in:- Deposits, Certificate of Deposits or other instruments offered by banks rated by Standard and Poor, Fitch, IBCA ,Moodys, etc. with rating not below the rating stipulated by Reserve Bank from time to time for the purpose; Deposits with branch/es of Indian Authorized Dealers outside India; and Treasury bills and other monetary instruments with a maturity or unexpired maturity of one year or less. There are no end-use restrictions except for a total ban on deployment / investment of such funds in real estate or the stock market. The ADR / GDR proceeds can be utilized for first stage acquisition of shares in the disinvestment process of Public Sector Undertakings / Enterprises and also in the mandatory second stage offer to the public in view of their strategic importance.
Pricing of issue ADR to be denominated in freely convertible currency and underlying shares to be denominated in INR; In case of listed companies: Average of the weekly high and low of the closing prices of the related shares quoted on the stock exchanges during the six months preceding the relevant date; Average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the two weeks preceding the relevant date. Relevant date= 30 day prior to date of meeting passing resolution under section 81(1A) of the Companies Act, 1956. The above is not applicable to companies going for simultaneous listing. In case of unlisted companies: As per RBI pricing norms in force. Presently, valuation has to be conducted as per discounted cash flow method.
Transfer, redemption and lock-in There is no lock-in. Once listed, the ADR’s are freely tradeable; The holder of ADR may ask for redemption and underlying shares shall be issued to the holder who can sell them subject to FEMA/FDI policyIntermediaries involved Lead manager to the issue Domestic custodian bank Overseas depository bank [Approved intermediary under the scheme would be an investment banker registered with SEC, USA] Underwriters Legal advisors
India proposing to allow unlisted companies to raise funds abroad. Around 19 Indian companies have listed ADR’s so far. Only Makemytrip has used the holding company structure to list in the US.
HANDLING CORPROATE HOUSEKEEPING DUE DILIGENCE SERVICES HANDLING INDIAN REGULATORY COMPLIANCES, ADVISORY AND STRUCTURING TAX STRUCTURING