Unlisted companies get overseas listing lifeline

Experts say move will benefit firms in technology and internet space

At a time when the initial public offering (IPO) market has dried up, the government has thrown a lifeline to India Inc by allowing unlisted firms to list abroad.

The government, craving for dollars to rein in the current account deficit, has allowed unlisted Indian companies to raise capital through overseas equity offerings. But the provision is available only for two years.

The move could see Indian companies such as online retailer Flipkart list in the US, which offers attractive valuations.

Earlier, Indian companies were only allowed to list abroad with prior or simultaneous Indian listing.

“Indian companies, especially those in the internet and technology spaces, will benefit,” said Sudhir Bassi, executive director, Khaitan and Co, a law firm. “These companies will be able to raise money at attractive valuations on the US Nasdaq stock exchange, which has investors with good depth and understanding of such sectors.”

Experts said the move would open a pool of capital. “There are specific geographies that favour specific sectors, which Indian companies will be able to explore,” said Vinay Menon, executive director, JPMorgan. “It will specially help companies in the internet, digital and biotechnology spaces. Also, infrastructure companies looking to tap the business trust route could benefit.”

As direct listing wasn’t allowed and valuations available in the domestic market weren’t good enough, few Indian companies took the tedious overseas holding company route to list abroad.

In 2010, MakeMyTrip, India’s largest online travel company, had raised $70 million through an IPO on the Nasdaq. The company’s shares had almost doubled on debut, valuing the company at $800 million.

Experts said the overseas holding company route, which involved floating a holding company abroad and later listing it, was a tedious one. “The overseas holding company route has a number of issues and isn’t an easy route to tap,” said Bassi.

The finance ministry has said the move to allow unlisted companies to list abroad was only on a pilot basis for two years. The government has set a tight timeline of 15 days for utilising the funds raised, or else these would have to be remitted back to India. Also, the capital raised abroad would have to be used to retire foreign debt or for overseas acquisitions. Companies would also have to comply with the Securities and Exchange Board of India’s disclosure requirements and can tap only IOSCO-compliant exchanges.

Experts said some companies could be forced to look overseas for listing as the domestic primary market is going through a slump. Since 2010, when Indian companies raised a record Rs 37,535 crore through IPOs, capital raising has seen a huge drop.