Foreign listings: The pros & cons for firms and investors

livemint.com:

NEW DELHI : The central government last week notified a regulation to allow unlisted Indian companies to list on foreign exchanges. Thus far, only companies listed in India could seek a secondary listing. Mint explains the development and its implications.

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. 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.

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