Five Reasons Why ‘Global First’ Listing May Work Well In India

The Indian government has finally allowed non-listed domestic firms to list abroad and raise capital without prior or simultaneous listings in India. The Ministry of Finance (MoF) made the announcement a couple of days ago – clearly a proactive step to boost the inflow of foreign investments in the country.

Unlisted Indian companies are now allowed to list abroad on a pilot basis for two years, after which the finance ministry will review its impact. On the paper, it looks good, but let us have a quick look at the mandatory requirements and their feasibility.

To start with, businesses can list only on exchanges in International Organization of Securities Commissions (IOSCO)/Financial Action Task Force (FATF)-compliant jurisdictions or in countries with which India’s securities market regulator SEBI has signed bilateral agreements. Also, SEBI must have a copy of the return submitted to the proposed exchange/regulator to ensure that the firms are complying with the Prevention of Money Laundering Act (PMLA). That should not be much of a problem but here is the biggest hitch.

In spite of the new provision, one can’t override the current FDI (Foreign Direct Investment) norms, which means e-commerce companies floated in India cannot list overseas. And that brings us to the second crucial point. According to the finance ministry, companies listing abroad can use the funds only to repay outstanding foreign debts or to expand overseas operations including acquisitions. But that could be a body blow as not all Indian companies have foreign investors on board or raised debt capital overseas or actively sought global expansion.

So who all will gain and why
Quite a few companies may find it an exciting initiative in spite of initial criticism. Check out how businesses can gain from the latest ‘Open IPO’ initiative, rolled out by the Indian government.

More industries get a global window: Fast-growing and fast-maturing technology start-ups with focus on Cloud/SaaS-based enterprise solutions are bound to benefit, since the majority of them are already active in the U.S./European markets. This also holds true for a plethora of companies operating in segments like the Internet, digital business, biotechnology and exports. Interestingly, even mature companies prefer to skip the domestic issue at times. One interesting example is Karan A. Chanana-led specialty rice company Amira Nature Foods, which got listed on the New York Stock Exchange in 2012 after 97 years of success as a private firm and in spite of the fact that just around 2% of its revenues come from the US market. Amira is the 12th Indian company to list on the NYSE Euronext markets.

Greater growth possible for Indian e-commerce: First of all, it should not be a dampener for e-commerce companies in India in case they are eyeing global IPOs sans the India route. Till date, the usual practice of listing abroad is to float a holding company out there, which has firms/assets in India, and then take that overseas firm public in a foreign market. E-commerce firms can still do it, but this time with the additional benefit of making strategic acquisitions abroad (like the Myntra-Fitiquette deal) without any hassle or implementing a global rollout and getting growth funding for the same.

Valuation gains on the cards: Experts also feel that listing abroad may lead to permanent valuation gains for Indian companies. For instance, in 2010, MakeMyTrip, India’s largest online travel agency (OTA), raised $70 million through an IPO on the NASDAQ. The firm’s shares nearly doubled on debut, valuing it at $800 million. We are just wondering if Indian e-com giants Flipkart and Myntra will do an MMT when it comes to initial public offering.

Profitable exits for investors: Although most SME IPOs get fully subscribed at home (because of their small size), a lot many companies have deferred their public issues due to a weak market and raised considerably large pre-IPO amounts from private equity/venture capital investors (Flipkart does it often enough and one is left to wonder what the company intends to do with the IPO money when that finally happens). However, it clearly shows a lack of confidence in the primary market and PE/VC investors are not able to exit their investments in many cases (or did so with huge losses). Therefore, the latest initiative could send them looking for profitable exits via overseas IPOs. If that happens and the viability factor gets proven beyond a doubt, more investments are likely roll in, especially from investors keen to bet on the emerging markets.

Market sentiment may improve: We may not see a slew of U.S./UK listings right now, but favourable negotiations in that direction may start soon. Better still, the domestic IPO market may take a cue and Indian firms looking for Indian listings may have a field day, following a positive impact globally (the JustDial IPO showed it can definitely happen in India). So let us keep our fingers crossed and wait for the outcome.