Valuations may blunt Sebi’s domestic listing push

Earlier this month, shares of direct-to-home service provider Videocon d2h got listed on the Nasdaq stock exchange albeit through a blank-check company Silver Eagle Acquisitions, which picked up 33% stake in the company.

Interestingly, Videocon d2h had plans to list domestically and even filed its offer document twice with stock market regulator Securities and Exchange Board of India (Sebi).

However, the deal with Silver Eagle, sources said, fetched over 50% more valuations than what it would have fetched by listing in the home market.

Experts believe availability of attractive valuations in the overseas market could blunt the initiatives by Sebi and the government, who are readying a more relaxed regulatory framework to encourage startups and other companies list domestically.

The ecosystem available in the developed markets like the US would mean domestic startup superstars like Flipkart or Snapdeal will ditch listing in the home market, they add.

Legal firm Khaitan & Co’s executive director, Sudhir Bassi says apart from the regulatory framework, there are various other considerations for choosing a market for listing.

“Besides ease of listing, availability of set of target investors and valuations could be important considerations,” he said.

Last week, UK Sinha, chairman, Sebi said that the new policy for IPOs by startup companies is in works and will be ready in three months.

“We want our companies to list in India rather than being forced to list abroad… a certain set of rules will have to be carved out for them (start-ups and e-commerce companies) because they have a very specific business model,” he had said.

As most of the domestic start-ups are not yet profitable, doubts remain whether domestic institutions would embrace them if they decide to list here.

S Naren, CIO, ICICI Prudential AMC termed the companies in the e-commerce space as “concept stocks.”

“These (e-commerce players) are unique companies, which are burning a lot of cash and are growing rapidly. I am not sure if a mutual fund manager managing public money would be comfortable investing in these companies,” he said.

Experts point out that investors in markets like US are more matured to look at companies with innovative business models even though they are far from turning profitable. Ability of such investors might lure Indian companies to look at US listings.

“We would like to see the actual regulations (on startup listings) come through. It is not so much about regulatory evolution as it is about market evolution. Some markets have great understanding of certain businesses. To create that kind of an eco-system, it requires time,” said S Subramanian, managing director-investment banking at Axis Capital.

Although, Indian rules didn’t permit direct overseas listings till recently, some Indian companies including have opted to list in the US markets –through the overseas holding subsidiary route — due the availability of attractive valuations.

Now with easing of norms to allow direct overseas listings, companies, especially in the technology and e-commerce space, will be more inclined to list overseas, believe market players.

As most Indian startups have private equity investments, the tax treatment in each of the jurisdiction is also an important factor.

“The Indian capital market is competing with other markets to attract quality issuers to list. The regulatory arbitrage is something that companies might want to explore,” said Bassi.

He added that a crucial factor, however, which might see some companies list domestically, is “visibility”. 

“Listing in home market will help create brand building and awareness. It will also send out a signal that you are committed to that geography,” Bassi added.

Most Indian companies in the interest space are yet to tap the capital markets in a big way. So far only two internet-based companies have listed in India. These include Infoedge, which operates job site, and JustDial, a local search engine.