Many Indian businesses were set up with a holding company outside India, usually to raise capital from foreign investors. As domestic capital markets have deepened, a growing number are reversing that structure so that the Indian operating company becomes the parent and can list in India.
Principal routes
- Share swap. Shareholders of the foreign holding company exchange their shares for shares of the Indian company, subject to FEMA pricing and reporting requirements.
- Inbound merger. The foreign holding company merges into its Indian subsidiary under the Foreign Exchange Management (Cross Border Merger) Regulations, 2018. Since 2024, a merger of a foreign holding company into its Indian wholly-owned subsidiary may proceed through the fast-track route under Section 233 of the Companies Act, 2013, with prior RBI approval.
Issues to address
- Tax on the exchange in the hands of shareholders in India and in the foreign jurisdiction.
- Treatment of foreign investors’ rights, ESOPs and convertible instruments in the new structure.
- FEMA compliance for the resulting holdings of non-resident shareholders.
- Transfer of intellectual property and contracts held by the foreign entity.
- ICDR eligibility, including the holding period of shares to be offered in an IPO.
Our view
A reverse flip should be planned well before the IPO timetable, since the holding period and lock-in requirements under the ICDR Regulations run from the date shares are acquired in the Indian company.