Foreign listings: The pros & cons for firms and investors

Is there a demand for overseas listing?

Traditionally, listing has been a very domestic process as companies generally raise capital and list in their local market. This is because a company and its business are best understood where they operate. However, with the advent of tech companies, the paradigm has changed. More and more tech and tech-enabled firms have a global footprint. Also, investors across the world are always on the look out for stocks that could potentially become the next multi-bagger. They are open to investing in companies from emerging markets. This has created a demand for overseas listing of companies.

What’s in it for the companies?

Globally, there are niche exchange platforms that offer firms a better deal than their domestic bourses. Indian technology companies have always eyed listing on platforms such as the Nasdaq where several big technology-focused investors trade. Such platforms could offer premium valuations to a company since investors on the platform are in a position to appreciate their business. In contrast, the same technology company may not find buyers on a domestic exchange, since Indian investors may not have the expertise to value the business fairly. Loss-making companies are generally met with scepticism from investors in India.

Where can unlisted companies now list?

Any company already listed in India is eligible for foreign secondary listing even today. However, unlisted companies are unlikely to be allowed to list anywhere they want. The government is expected to provide a list of jurisdictions where Indian firms will be allowed to list. IFSC in Gift City, Gandhinagar is expected to be part of permitted jurisdictions for overseas listing.

Do regulatory issues need addressing?

Double compliance is a major challenge. Firms must adhere to the rules of the country where they list. Since the firm is incorporated in India, they must also follow Indian capital raising norms as well. In addition, taxation -related issues need to be addressed pertaining to capital gains. Some clarifications on the exchange of shares and forex are also needed. Geopolitics is yet another factor—tensions between India and a foreign country where a company is listed could result in an adverse impact.

Isn’t it easier to simply list in India instead?

For now, India certainly looks like a good bet. India currently has nearly a dozen listed tech and digital-first companies, including Paytm, Zomato and Nykaa. Although the initial experience of investors with these IPOs has not been positive, things seem to be improving. While Indian mutual funds and insurance firms don’t invest much in tech firms, India is seeing a surge in wealthy investors willing to take the risk. In contrast, US markets are seeing turmoil as bond yields rise and investors shun high-risk tech stocks.