A decision to allow Indian startups to list directly overseas will be taken soon, top government officials assured investors during a meeting chaired by Prime Minister Modi on December 17.
Prime Minister Narendra Modi hosted a roundtable interaction with representatives of Venture Capital and Private Equity Funds ahead of the Union Budget in February 2022.
At least two people part of the meeting told Moneycontrol that the issue of direct overseas listing was broached by multiple investors during the one-and-a-half-hour-long meeting.
"The government indicated that a decision will be taken soon. It is not clear if they will announce it with the Union Budget or before. They might insist on an India IPO after a startup has listed abroad," one of the persons cited above said.
A second person said the government also expressed concerns about many startups "flipping", a term used to refer to Indian companies incorporating their companies abroad, in countries such as the US, Singapore, and increasingly, UAE. Startups mostly do this because of a friendlier policy and tax regime, ambitions of an overseas listing, apart from the fact that their investors are from that country.
"They wanted to understand the key reasons why this is happening and how they can address this," a person who was part of the meeting said.
Sources said the other issues that were discussed include parity in tax structure between domestic and overseas investors, apart from Blockchain technology. "Prime Minister Modi was also very bullish on Space tech and startups emerging from this area. He further spoke about how startups can help agriculture, infrastructure, and affordable housing, apart from ways to make the GIFT city more attractive. The Prime Minister indicated that he would like to have an annual meeting like this with investors on a regular basis," a source said.
The government's assurance on overseas listing comes months after some of India's best-known startup founders and investors had written to the Prime Minister's Office (PMO) urging the Centre to allow startups to list overseas -- a move planned for years but on which action seems to have stalled recently.
US capital markets are far bigger than India, making it an attractive place for Indian startups to list, given increased investor interest and more sophisticated investors. Investors in other developed markets are also more used to seeing high-growth sometimes loss-making companies and those companies may be valued better in foreign stock markets.In September 2020, the government took the first step towards allowing direct overseas listing when it amended the Companies Act, 2013. In February, companies listed abroad were given more compliance freedom than Indian companies. However, further action is awaited, the letter noted.
Currently, Indian companies can list abroad by issuing American Depository Receipts (ADR) or Global Depository Receipts (GDR), a proxy to shares, which represent the company's stock, but are less liquid and may not fetch the same sort of excitement and valuation that actual shares do.
The letter also addressed concerns of capital and wealth creation shifting abroad, saying that Indian companies listing abroad will in fact elevate their profile and attract more foreign investments in India. Further, companies can be listed both in India and abroad.
In a recent column for Moneycontrol, Mohandas Pai, the chairman of Aarin Capital and Manipal Global Education said as a country, India needs to give its start-up founders the choice to play on the global stage and directly list in a country of their choice.
"What India needs right now is a good, open regulatory system which encourages innovation, risk-taking, investment, and job creation, and facilitates the growth of the economy to $5 trillion by 2026. Barriers such as not allowing Indian companies to list directly overseas are unnecessarily holding up India’s growth," he wrote.
According to a statement issued by the Press Information Bureau after the meeting on December 17, PM Modi sought suggestions towards improving Ease of Doing Business in India, attracting more capital, and furthering the reform process in the country. He also discussed the efforts undertaken by the government to bring in more reforms, the future potential of initiatives like PM GatiShakti, and steps taken to reduce the unnecessary compliance burden.The interaction was attended by Prashant Prakash from Accel, Rajan Anandan from Sequoia, Gopal Srinivasan from TVS Capitals, Renuka Ramnath from Multiples, Munish Verma from Softbank, Sandeep Naik from General Atlantic, Manish Kejriwal from Kedaara Capital, Ashley Menezes from Chrys, Srini Sriniwasan from Kotak Alternate Assets, Shantanu Nalavadi from India Resurgent, Siddarth Pai from 3one4, Vineet Rai from Aavishkar, Shweta Jalan from Advent, Amit Dalmia from Blackstone, Vipul Roongta from HDFC, Ankur Gupta from Brookfield, Mukul Arora from Elevation, Sehraj Singh from Prosus, Mr. Ranjit Shah from Gaja Capital, Sunil Goyal from Yournest and Padmanabh Sinha from NIIF. Union Finance Minister Nirmala Sitharaman, MoS Finance, Officials of PMO, and Finance Ministry were also present in the interaction.