Direct overseas listing for India Inc on the table. Here’s why it matters

26/08/2021

The Indian government is looking at allowing local companies to directly list on an offshore stock exchange, a long-standing demand of the corporate world especially tech startups who feel the pool of mature investors in such markets tend to value new-age businesses better.

Revenue secretary Tarun Bajaj said Wednesday the finance ministry was considering such an option but added some issues would need to be resolved first. He didn’t specify which aspects were the authorities looking at.

To be sure, the government had taken some steps for allowing direct overseas listing a year agowith amendments to the Companies Act, 2013. But much more needs to be done to actually allow such listings. In the past, the government wanted to foster local bourses and was keen to see Indian companies share wealth with local investors, who have limited access to overseas stock markets.

Bajaj’s comments come amidst a boom in the primary market both in India and abroad. A number of companies, including tech startups have already filed for initial public offerings in India. The successful listing of online food ordering company Zomato, which is now among the top 50 companies by market capitalisation, has bolstered other peers to look at local IPOs.

Around half a dozen internet companies are now listed in India. These include legacy players like jobs portal Naukri.com parent’s Info Edge, matrimonial platform Matrimony, B2B ecommerce firm IndiaMart and the recently listed CarTrade.

Mobile payments giant Paytm’s parent One97 Communications and peer MobiKwik are also looking to float IPOs on the domestic bourses. Paytm previously filed for an IPO in 2011 when it was still a value-added service provider to telecom companies but decided to scrap it fearing it would not get the right valuation.

Global investor base, SPAC route

However, many still feel several businesses would get a fair valuation and appreciation on the US markets where a global investor base that has been backing new-age technology stars for several years.This is partly due to the fact that a wider set of the peer group in a similar business on the same exchange would open such companies to a different set of investors as they come under the radar of investment analysts tracking a niche domain.

To push for direct overseas listing, some startup founders and their investors wrote a note earlier this month to the Prime Minister's Office. These startups included Byju’s, Swiggy, Urban Company, Cred, and Unacademy.

Some Indian companies have taken to innovative structures to still push through an overseas listing. Some Indian tech companies had listed overseas during the dotcom boom but a few other internet companies went public in the US over the last decade. These include travel companies MakeMyTrip and its arch rival Yatra. 

In fact, Yatra took a circuitous route due to lack of direct listing norms. It merged with a special purpose acquisition company (SPAC), also known as a blank cheque company. Earlier this week, one of India’s top renewable energy companies ReNew took a similar route to list on the NASDAQ.

To be sure, several Indian companies are separately listed abroad through depository receipts for decades. These are secondary listings after they already have the parent on the domestic bourses.
 

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