Friday, September 18, 2009

The Legal Aspects of Dual Listings

There has recently been a fair amount of discussion regarding the ability of companies to carry out dual listings in India. This arises in the context of dual listing as a possible structure being considered in the Bharti-MTN transaction.

Generally, dual listings occur when two or more companies (that otherwise intend to merge) continue as separate entities with separate sets of shareholders, but agree to combine their operations under a common management. In that sense, there is a “virtual” merger or sorts rather than an actual legal merger of the companies. This may also require any or all of the companies involved to be listed in multiple jurisdictions, particularly where there is a cross-border transaction. For a general understanding of dual listings and some prominent examples of dual listings in other jurisdictions, please see here and here.

As far as India is concerned, dual listing is a somewhat alien concept, at least in the cross-border sense. Under corporate law, changes would be required to the Companies Act, Securities Contracts (Regulation) Act, takeover regulations and the listing agreement to enable dual listings. Primarily, this would necessitate a foreign company being listed on the Indian bourses, which is currently disallowed. Foreign companies can be listed in India, but only in the form of Indian Depository Receipts (IDRs) and not their underlying shares. Although the legal regime relating to IDRs has been in place for the last few years, no company is yet to avail of it. Apart from corporate law, dual listings would require liberalisation of the Foreign Exchange Management Act and various regulations thereunder towards full capital account convertibility as it may require foreign shareholders to trade in domestic shares and Indian shareholders to trade in foreign shares (in either case denominated in the currency of the shareholders).

The following columns/reports provide further analysis of the various issues involved in dual listings of Indian companies:

- Dual listing: Its implications in the Economic Times;
- Two countries, one company in the Financial Express; and
- Lack of dual listing law may bog down deal in The Mint.

The bigger question is not whether changes can be effected to permit dual listings of Indian companies, but whether an enabling regime can be accomplished without undue delay.

(Update – September 19, 2009: Further readings are available: Learn to love a rupee that’s convertible in the Financial Express and Dual listing truths in the Hindu Business Line)

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