Tightening of norms by US bourses may queer the pitch for Indian entities

Tightening of the listing framework by US bourses and the proposal to delist non-compliant firms may make the road more tough for Indian entities looking to sell shares in the world’s largest market.

The Senate passed a legislation earlier this week that requires non-US firms to meet a number of strict criteria to remain listed. Further, exchanges including Nasdaq plan to enforce tighter rules for initial public offerings (IPOs). One such rule mandates companies to raise a minimum of $25 million, or sell at least 25 per cent equity.

Experts said the decision to enact a tighter framework was aimed at China, but could end up impacting other countries too. The stricter listing framework comes at a time when India is set to allow domestic firms to directly list overseas. Nasdaq, a bourse focused on technology stocks, is a preferred destination for start-ups and new-age companies.

“Chinese firms typically access US markets through the foreign private issuer (FPI) route, which grants a number of relaxations compared to a US entity. This is the same route taken by Indian and other overseas entities. It is reasonable to assume that any changes by Nasdaq or NYSE will be applicable to this category of issuers, rather than any specific jurisdiction. So any tightening of conditions on offerings by FPIs is likely to be applicable to future offerings by Indian entities,” said Vishal Yaduvanshi, partner at Induslaw.

In recent years, US and other international finance centres have lowered the compliance bar to encourage more companies to list.

Jitesh Shahani, partner at L&L Partners, said the new proposals could impact only smaller firms looking to list in the US.

“The regulatory changes might hurt a select group of Chinese firms more than Indian companies, which are better off in terms of compliance with international accounting standards and are likely to aim at a higher issue size. However, it might adversely affect small Indian companies. Indian tech or tech-enabled businesses are the most likely candidates for a depositary receipt offering and listing on the Nasdaq.

 

 

Recent announcements by the government have reignited the debate on allowing direct listing of securities by Indian companies on international exchanges, and participants are awaiting further clarity and regulatory steps by the government in this regard,” he said.

The proposal to allow Indian firms to directly list overseas was part of the announcement made regarding the Rs 20-trillion package.  

At present, Indian entities that wish to list abroad have to first list domestically and then issue depository receipts (DRs) with domestic shares as underlying. Another avenue is the overseas holding company route, which involves setting up a holding company abroad and later taking it public.

In 2010, India’s largest online travel company MakeMyTrip had raised $70 million through an IPO on the Nasdaq. More recently, Videocon D2H — the satellite television arm of Videocon Group — got listed on the Nasdaq in 2015.