The article was first published in GermanyContact India magazine, issue September 2009
In November 2008, Deutsche Börse AG and the Bombay Stock Exchange (BSE) concluded a cooperation agreement in which both partners agreed to simplify access to their stock exchanges for companies in their respective markets. Currently, a total of 30 Indian companies are listed for Open Market trading on the Frankfurt Stock Exchange (FSE). The following article addresses the advantages and particularities of the listing of Indian companies on the FSE, which is operated by Deutsche Börse AG.
There are many reasons why Indian companies are attracted to being listed on the Frankfurt Stock Exchange (FSE). A comparison of the liquidity situation of the different international stock exchanges has shown that, in general, liquidity in stock trading in Frankfurt is significantly higher. Greater liquidity through higher trading volumes is a good basis for a fair valuation of a company on the capital markets.
Companies in the renewable energy, chemical, software/IT, financial and automobile sectors in particular will encounter their peers on the FSE and stand direct comparison. In addition, the approved indices of the FSE increase the visibility of Indian companies and attract the attention of investors and clients to companies included in the relevant index. In Germany, Indian companies meet up with analysts with expertise in a specific sector, especially in those sectors where Germany is - generally speaking – particularly strong.
Companies can access investors all over the world through the Xetra trading platform of the FSE. Currently, a total of 247 trading members are listed on the electronic trading platform, Xetra. Furthermore, the FSE offers a range of market segments which allow issuers to choose the market segment that best suits them, taking into account access criteria, post-admission obligations and the objectives pursued by the listing. The listing procedure at the FSE is one of the fastest in the world and the listing fees are highly attractive compared to other international FSE competitors.
Choice Of Market Segments On The FSE
Issuers at the FSE can choose between the Regulated Market (General Standard/ Prime Standard) and the stock exchange only-regulated Open Market (First/Second Quotation Board and Entry Standard).
In principle, access to the Regulated Market is only possible with a securities prospectus approved by the supervisory authority in the issuer's home member state within the European Economic Area (EEA). Moreover, issuers in the Regulated Market are subject to the post-admission obligations of the EU Transparency Directive as implemented in German law. As regards post-admission obligations, the Prime Standard offered by the FSE to its issuers is a quality segment that imposes even stricter requirements on issuers than the EU Transparency Directive.
Admission to the Open Market does not in principle require a securities prospectus or comparable document. In this respect and in comparison to some European competitors requiring a document similar to a prospectus for admission to their stock exchange regulated market segments, the FSE provides easier, faster and less costly access to capital markets, especially as the drafting of a securities prospectus or comparable document is both time and money consuming for the issuer. However, companies listed on the Open Market also have to draft a securities prospectus if they intend to offer securities to the public or if the planned marketing measures appear to make the publication of a securities prospectus advisable. A private placement to investors does not require a prospectus.
A securities prospectus does, however, also serve as a company's calling card in the capital markets; the majority of market participants thus recommend the drafting of a prospectus for stock exchange listing. In addition, the marketing of transactions without a prospectus is only possible to a very limited extent due to the broad concept of offering securities to the public.
The Open Market is divided into the First Quotation Board for companies, which are not yet listed on any other stock exchange recognised by the FSE and the Second Quotation Board for companies already listed, as well as the Entry Standard. Whereas no post-admission obligations have to be observed for the First and Second Quotation Boards, issuers for the Entry Standard undertake to comply with certain post-admission obligations.
Particularities In Connection With Indian Issuers
One specific concern for Indian issuers is that, according to Indian law, a direct listing of shares of an Indian company on a foreign stock exchange is not possible. A direct admission would be conceivable only via a holding structure if the holding (and issuer of the shares to be admitted) has its registered office outside of India and only the operational companies are located in India.
However, Indian companies (which already have their shares listed on a stock exchange in India) could access foreign equity capital markets through a depositary receipts mechanism. As well as the Frankfurt Depositary Receipt Programme (Frankfurt GDR), the ADR and GDR programmes may also be admitted for trading on the FSE.
Equivalent To Indian GAAP
It is always a matter of considerable importance to companies to establish the accounting standards by which their historical financial information to be disclosed in the securities prospectus is to be declared. If Indian issuers are obliged to draft a prospectus for listing on a Regulated Market on the FSE or a public offering of their securities, the historical financial information which it is mandatory to incorporate into the securities prospectus has to be prepared in accordance with IFRS or an equivalent accounting standard. Through Commission Regulation (EC) No. 1289/2008, the GAAP of the People's Republic of China, Canada, the Republic of Korea and the Republic of India were recognised as equivalent for financial years beginning prior to 1 January 2012, as well as Japanese and US GAAP. This removed an obstacle to accessing the EEA's capital markets for companies reporting according to these accounting standards, thus further increasing the attractiveness of EEA capital markets.
However, this exemption is provided only for Indian issuers aiming to become listed on the FSE through a Depositary Receipt Programme. Companies which aim to become listed at the stock exchange through a foreign holding ultimately have to observe the accounting rules which apply to the state where their holding has its registered offi ce and the (non-Indian) state of registration is unlikely to permit accounting practice according to Indian GAAP. If the state of registration is within the EEA, the financial information has to be prepared in accordance with IFRS or, if a securities prospectus is drafted for a public offering on the Open Market, in accordance with IFRS or the local GAAP of the EEC member state of registration.
There are many good reasons for an Indian company to choose the FSE for its international listing. Interested companies are welcome to contact Deutsche Börse and its listing partners to discuss in person the advantages of being listed on the FSE and the choice of market segment suitable for particular company.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.