IFSCA Moves to Operationalise Direct Listings Without an IPO
Nearly two years after introducing Regulation 40 of the IFSCA (Listing) Regulations, 2024, the International Financial Services Centres Authority (IFSCA) has released a consultation paper proposing the long-awaited regulatory framework for the direct listing of equity shares and convertible securities on recognised stock exchanges in IFSCs without undertaking a public offer. While Regulation 40 has, since 2024, permitted such listings in principle, it remained inoperative because the detailed eligibility conditions, disclosure standards and procedural framework had not been prescribed. The consultation paper now seeks to fill that gap.
The proposal is particularly relevant for mature founder-led, venture-backed and private equity-backed companies that no longer require fresh capital but seek the benefits of a public listing such as market visibility, enhanced governance, transparent price discovery and liquidity for existing shareholders. In substance, the framework introduces an Indian IFSC equivalent of the direct-listing routes already available on exchanges such as the NYSE, Nasdaq, London Stock Exchange and Tokyo Stock Exchange, while incorporating safeguards tailored to the IFSC market.
The Defining Feature: A Higher Threshold for Direct Listings
The most significant aspect of the proposal is not that companies can list without an IPO that possibility already existed under Regulation 40 but who will be eligible to use this route.
IFSCA proposes retaining the existing revenue and profitability thresholds applicable to IPOs:
- operating revenue of at least USD 20 million in the last financial year or averaged over the previous three financial years;
- pre-tax profit of at least USD 1 million in the last financial year or averaged over the previous three financial years.
However, unlike a traditional public offering, a company seeking a direct listing would be required to have a minimum post-listing market capitalisation of USD 50 million, compared to USD 25 million under the existing IPO framework.
The consultation paper explains that the higher threshold is intended to address the absence of a public issue, which may otherwise affect liquidity and price discovery. The proposal therefore signals that this route is intended for larger, established businesses rather than companies seeking growth capital through the public markets.
Information Document Instead of an Offer Document
Rather than issuing a prospectus or offer document, an issuer would file an Information Document through one or more IFSCA-registered investment bankers.
The document would contain comprehensive disclosures regarding the issuer’s business, management, financial statements, shareholders’ agreements, material contracts, litigation, related party transactions, regulatory actions and risk factors. Investment bankers would also be required to undertake due diligence and submit a due diligence certificate to both the recognised stock exchange and IFSCA.
Although there is no public offering, the disclosure expectations remain comparable to those applicable in a conventional listing.
A Different Approach to Price Discovery
Unlike a traditional IPO, the proposed framework dispenses with the book-building process. Instead, pricing would follow a two-stage mechanism:
- an independently determined base price prepared by a registered valuer using internationally accepted valuation methodologies; and
- a special pre-open market session on the recognised stock exchange to determine the final market price based on actual buy and sell orders.
This is one of the most significant structural departures from the conventional IPO process and reflects the need to establish a transparent market price in the absence of a primary issuance.
Public Shareholding Requirements Continue
Since the framework does not involve a public offer or an offer document, IFSCA proposes that the minimum public offer and allotment requirements under Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957 would not apply.
However, continuous public shareholding obligations would continue:
- Indian companies would remain subject to Rule 19A of the SCRR; and
- foreign issuers would be required to maintain a minimum public shareholding of 10%.
Financial Reporting Standards
The framework also prescribes robust disclosure standards, including:
- audited financial statements for at least the previous three financial years (or for the period of existence where shorter);
- financial statements not older than six months;
- valuation reports based on recent financial statements; and
- financial reporting under IFRS, US GAAP, Ind AS or recognised home jurisdiction accounting standards, with IFRS reconciliation where necessary.
What This Means
This proposal creates an alternative route to the public markets for companies that have already achieved commercial scale and no longer require primary capital. For founders, venture capital and private equity investors, it provides a potential pathway to liquidity without issuing new shares or diluting existing ownership. At the same time, by imposing a higher market capitalisation threshold and replacing book-building with a valuation-led price discovery process, IFSCA has sought to balance flexibility with market integrity.
Equally significant is the broader regulatory signal. Rather than introducing a wholly new listing model, IFSCA has drawn on established direct-listing regimes in jurisdictions such as the NYSE, Nasdaq, London Stock Exchange and Tokyo Stock Exchange, while adapting the framework to the IFSC ecosystem through enhanced eligibility standards and valuation safeguards. If implemented, the framework would place GIFT IFSC alongside leading international markets that permit mature companies to access public markets without undertaking a traditional IPO.
Disclaimer: The views expressed herein are solely for legal research purposes and do not constitute legal opinion, legal advice, solicitation, or professional guidance of any nature. The views are personal to the author and do not necessarily reflect those of PJ Law Offices (www.pjlaw.in), its principal, representatives, associates, retainers, affiliates (collectively, “PJLaw”). Readers are advised to seek independent legal counsel before acting on any information contained herein. PJLaw makes no representation or warranty, express or implied, regarding the accuracy or completeness of the contents and expressly disclaims all liability arising from reliance upon or use of the same.
