Investors Irked by Govt’s Secondary Listing Plan For Firms Joining Foreign Markets

Domestic companies that list overseas will have to later launch on a domestic bourse under policy changes being considered by government officials, a move that global investors fear will harm valuations. The government said in March it would allow local firms to directly list abroad to better access foreign capital for growth, but the rules have yet to be decided.
Currently only certain types of securities such as depository receipts are able to be listed in foreign markets, and only after the companies go public in India. The new policy, aimed at helping local firms achieve better valuations, could be a shot in the arm for Indian unicorn start-ups valued at over $1 billion and Reliance Industries’ digital unit, which is eyeing a US listing after raising over $20 billion from global names like KKR & Co. But in recent weeks officials told global investors and companies in meetings they were considering mandating a secondary listing for local companies on Indian bourses after they list abroad and the time period under consideration for such a requirement ranges from six months to three years.
Japan’s SoftBank and a payment firm it backs, Paytm, as well as Reliance Industries, and US-based Sequoia Capital have conveyed to the government the secondary listing provision risks splitting trading volumes, hurting long-term valuations and raising compliance needs and costs. SoftBank and Sequoia have invested in various Indian firms like ride-hailing company Ola and hospitality firm Oyo.
Foreign listings could provide exits for such investors at higher valuations but also allow Indian firms, especially from the tech sector, to access specialised investors abroad who can better value their companies. The rules are being drafted by the finance and corporate affairs ministries, in discussion with the capital markets regulator Securities and Exchange Board of India (SEBI), and is expected to be finalized in coming weeks. Currently, Indian companies can list locally and then access foreign equity capital through instruments like American Depository Receipts (ADRs), a route used by Infosys and ICICI Bank.
The government is concerned that the upcoming policy change will mean that companies hunting for higher valuations through access to a wider group of investors, would choose to only list abroad, the sources said. That risks hitting the growth ambitions of domestic capital markets and depriving local investors of the wealth-creation opportunity. India’s equity market has a capitalisation of $2 trillion, compared with $39.3 trillion for the United States.
Between January and June this year, companies raised $23.6 billion via 63 initial public offerings (IPOs) on the New York Stock Exchange and Nasdaq, compared with $2.3 billion raised on Mumbai’s stock exchanges through 18 listings, data from Refinitiv showed. Lobbying group USIBC, part of the US Chamber of Commerce, has this week been seeking feedback on the plan from members in an e-mail saying “the hope is” there will be no dual listing requirement.

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