Dual listing standard poses challenges for startups IPOs


BENGALURU: As a large number of startups, including Delhivery, Zomato, MobiKwik, PolicyBazaar, prepare to go public, the double listing clause – which is part of the new regulations for overseas listing – could give them a strange tone.

Over the past week, startups have returned to the drawing board to understand the clause, which aims to keep Indian entities under the control of the country’s regulator.

Mint announced on September 11 that the double listing clause, which has come under heavy pressure, will force Indian companies considering listing overseas to list them on national stock exchanges.

This can lead to a distribution of liquidity between different countries and lead to increased taxation and compliance costs for startups.

“Double listing will actually help neither startups nor the regulator. The cost of compliance is high and some businesses may struggle to meet the needs of a single registration. With this double listing clause, the only option companies have is to either list in India or list a newly created foreign holding company, ”said Santosh N., Managing Partner of D and P Advisory Services LLP.

The Securities and Exchange Board of India (Sebi) clause which requires companies filing an IPO to maintain a minimum average operating profit of 15 crore for three consecutive years. Startups with parent entities in India will therefore find it more difficult with the current listing guidelines, as many that are considering going public are not yet profitable.

Delhivery’s chief commercial officer Sandeep Barasia had said earlier that if the company plans to go public by 2022, it will have to wait for Sebi’s final guidance on overseas listings to finally pick the cheapest for an IPO.

Last week, foodtech unicorn Zomato announced plans to list its stocks by mid-2021. For overseas registration it sounds comfortable, but if they need to register in India it would be a tight deadline.

Zomato did not answer Mint’s questions.

While under the Capital and Disclosure Requirements Regulation (ICDR), Sebi allows loss-making entities to go public, they must allocate 75% of their net public offering to Qualified Institutional Buyers (QIB), including including insurance, mutual fund companies, and alternative investment funds.

This leaves only 25% of the net supply available to investors and high net worth individuals, reducing fundraising by these startups from retail investors.

“The valuations that PEs and VCs like Carlyle and Softbank (who hold in Indian unicorns) have agreed upon for their investments in India are a theoretical valuation, and no one can really support it. So they definitely need something like an IPO to justify their valuation. The problem is that after the whole WeWork and Uber (IPO) debacle, we don’t know if the valuation Softbank and its ilk have indexed can be justified, ”added Aditya Jadhav, Chartered Financial Analyst and Senior (Investments) at SIDBI Venture Capital Ltd.

A senior executive at AlgoLegal, a startup consultancy firm, said listing in India was much more complex for startups, compared to listing in other geographies, where jurisdiction has been simplified, in keeping technology IPOs in mind.

“Sebi will need to lower its thresholds and be more sector-aware, for registrations. The standards cannot be the same for all sectors, ”the person said.

With the Reserve Bank of India imposing restrictions on granting fixed returns to investors, venture capital and private equity firms are insisting that startups incorporate their holding or parent company outside of India.

For example, Flipkart incorporated a separate entity in Singapore in 2011, with its India branch of operations being a subsidiary of that foreign entity. As more startups follow this structure, they will seek to go public through their international entities outside the framework of the Indian regulator.

“Dual listing can be a boon to investors and tech companies if national listing standards reflect the kind of freedom that markets like NASDAQ and others offer. In India, we don’t yet have the freedom to list tech stocks unless they meet the same standards as a manufacturing or software development company with big contracts, and we’ve seen a lot of these already. companies change their domicile status outside of India. to be able to access public markets abroad, ”said Anup Jain, MD, Orios Venture Partners.

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