13 March, 2016
Introduction
Since October 2013, under Indian laws, Indian companies are allowed to list overseas without a corresponding listing in India. Such overseas listings will have to take place by way of depository receipts (“DRs”) as an overseas share listing requires prior approval from the Indian government and historically no such permission has ever been granted to Indian companies by the government. The Depository Receipts Scheme, 2014 that became effective from 15 December 2014 confirms overseas DR listings, but it does not set out any disclosure requirements in relation to such overseas listings by Indian issuers.
In November 2015, The Hong Kong Exchanges and Clearing Limited (“HKEx”) added India to the list of acceptable overseas jurisdictions and released a country guide for Indian issuers who seek to do an overseas DR listing in Hong Kong (“India Guide”). Set out below is a brief summary of the India Guide.
Scope and Applicability
The India Guide sets out HKEx’s treatment to listing applications by Indian issuers. It should be read together with the Joint Policy Statement Regarding Listing of Overseas Companies issued by the Securities and Futures Commission (“SFC”) and HKEx on 27 September 2013 (“JPS”).
DR listings by Indian issuers, whether primary or secondary, are only allowed on the Main Board of the HKEx.
Indian issuers benefit from SEBI being a full signatory to the IOSCO MMOU (International Organisation of Securities Commission’s Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information). If an Indian issuer’s central management and control are in another jurisdiction, such jurisdiction should also have similar international co-operation arrangements with the SFC.
Shareholder Protection Standards
The Indian shareholder protection standards are not considered materially different from the JPS requirements.
The India Guide sets out the following two situations where JPS requirements are different from those of Indian laws along with its recommended approach:
(a) Voluntary winding-up: To approve voluntary winding-up, JPS requires a special resolution of the shareholders whereas only an ordinary resolution is required under Indian laws. HKEx recommends that the issuer’s constitutional documents should be amended requiring a special resolution of shareholders for a voluntary winding-up.
(b) Participation in general meetings: While the JPS requires a recognized Hong Kong clearing house to have the ability to appoint proxies to speak and vote at general meetings and creditors’ meetings, Indian laws allow shareholders (and not holders of DRs) to appoint only one corporate representative to speak and vote at a meeting for all the shares it holds and while it is possible to appoint multiple proxies, a proxy cannot speak at a meeting and can only vote where voting is conducted by a poll.
To address these differences, HKEx recommends that time and costs for conversion of DRs into shares be reasonable should a DR holder wish to attend and speak at a general meeting. Further, HKSCC Nominees Limited should be entitled under the issuer’s constitutional documents and depository agreement to appoint holders of DRs or their nominees as proxies to vote at general meetings. Restrictions on DR holders’ ability to speak at general meetings must be set out in the listing document.
Practical and Operational Matters
Indian issuers are advised to consult HKEx early to make sure the deposit agreement is in a form acceptable to HKEx. The Hong Kong depository chosen should be an authorized and regulated financial institution acceptable to HKEx. The listing document should set out the rights and obligations of the DR holders and the Indian issuer, associated risks as well as details of clearing and settlement arrangements.
Accounting and Auditing Related Requirements
JPS requires financial statements of the overseas issuer to conform to the Hong Kong Financial Reporting Standards or IFRS or US GAAP (only in case of secondary listings). It is the Indian issuer’s responsibility to satisfy HKEx that the Indian financial standards followed by it are comparable to the Hong Kong requirements and it remains to be seen whether HKEx will accept Indian GAAP or IndAS.
Tax Disclosures
The India Guide does not provide an analysis of tax matters. However, HKEx expects the listing document to contain detailed disclosures in relation to: (i) any withholding tax which is payable by investors in its securities; (ii) any treaty between India and Hong Kong that may affect any taxes payable; (iii) the effect of holding DRs through or outside CCASS on any tax payable; and (iv) the procedures for claiming any tax relief or exemptions.
Moving Forward
There were no Indian issuers listed on the HKEx as of the date of this update. After the Indian overseas listing regime has been liberalized, HKEx has sought to make it easier for Indian issuers to list in Hong Kong by recognition of India as an acceptable jurisdiction and issuance of the Indian Guide. Will Hong Kong become an attractive listing venue for Indian companies? Time will tell.
For further information, please contact:
Siddhartha Sivaramakrishnan, Partner, Herbert Smith Freehills
siddhartha.sivaramakrishnan@hsf.com
