23 September 2009

Is dual listing of shares a good idea?

I wrote an opinion piece in the Business Standard today on dual listing. Here is what I wrote:
The substantial problem relates to fundamental issues of corporate, tax, securities and even bankruptcy law. Key amongst them is how shareholders of another company — a wholly different legal entity, connected only by a contract and not even listed in India — can influence the voting rights in terms of appointment of directors of the Indian listed company without a re-writing of the Companies Act and a wholesale re-writing of the listing agreement with the Indian stock exchanges. Financial disclosures are required only of the Indian listed company, so another company, which is not obliged to make the disclosures and whose performance is key to the performance of the Indian company, is not legally obliged to have disclosure of financial details of the same standard as those of Indian company. There would also be extensive problems with various tax laws particularly income tax, as different laws would apply to, say, the dividend distribution and to remittance of income instead of dividend. The bankruptcy laws of the country which applies to Indian companies too would not allow transfer of capital distribution on liquidation. To give another instance from securities law, what would be the implication of acquiring over 15 per cent in the Indian company? Would the law require a compulsory tender offer only of the Indian company? Clearly, that would be an outcome that is not consistent with the contract of dual listing or its economics. These are only some of the handful of dozens of issues which will crop up.

Even if there is an aggressive political will to change so many laws, such a transaction would more likely be permissible in 2019 instead of in 2009 — roughly the timeframe in which Delhi has to ready itself for the Commonwealth Games.

Here is the full piece.

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