London prepares for India’s highly anticipated Overseas Listing Policy
The landscape of IPO opportunities for ambitious, growth-hungry Indian companies is set to change dramatically once India’s forthcoming Direct Overseas Listing Policy is introduced.
This new policy will allow Indian incorporated companies to list on select overseas stock exchanges by issuing their common equity shares to overseas investors (instead of Depositary Receipts). The Overseas Listing Policy will also allow foreign companies the ability to list on Indian exchanges.
This policy will lead to significant new options available to Indian companies. They will be able to have a primary listing on an overseas exchange of their choice without having to undergo the cumbersome and tax unfavourable process of changing their incorporation to an overseas jurisdiction.
In addition, it is likely that they will no longer need to have a prior domestic listing to access international equity capital, as is the requirement for the issuance of Depositary Receipts.
London: the world’s most international exchange
As the world’s most international stock exchange with nearly 40% of its listed companies being from outside the UK, London stands tall and ready to welcome this new generation of Indian issuers.
In 2020, 25% of the world’s cross-border IPO capital was raised in London, including 15 IPOs and a further 11 introductions and new listings from international companies. Three of London’s five largest IPOs were international. The appetite for international companies to tap into London’s depth of investor base has remained strong in 2021, with companies listing from North America, Europe, Africa and Asia-Pacific.
London Stock Exchange has a strong historic legacy of supporting Indian companies through its equity and debt markets. Since the mid 1990’s, 71 Indian companies have tapped London’s equity markets and raised £8.5bn ($14.5 bn). We have seen 19 issuers have raised over £13bn on our debt markets by issuing 41 Eurobonds & masala bonds. Moreover, the bulk of world trading in the Global Depositary Receipts (GDRs) of India’s largest and best-known companies takes place on London Stock Exchange’s International Order Book (IOB), the world’s most liquid electronic trading platform for GDRs. The total turnover of Indian GDRs in 2020 on the IOB was $3.76bn, 73% above 2019 numbers. Reliance Industries is one of the most heavily traded GDRs on IOB with more than $11m being traded daily.
Breadth of market structures to suit different needs
The breadth and flexibility of London’s market structures provide strong opportunities for Indian companies to flourish. It’s a market that comfortably accommodates private equity and VC exits, regularly seeing secondary proceeds of more than 40% during an IPO. It’s a market that is open to companies of all sizes, growth stages and sectors - from traditional businesses such as banking, financial services, energy and resources to newer, high-growth sectors including technology and consumer internet, renewable energy and life sciences.
With Tech becoming London’s fastest growing sector for IPO’s (29 tech IPO’s in 2021 and 49% of IPO funds raised), India’s flourishing high growth tech unicorns will find receptive & knowledgeable investors in London who are prepared to accord the right valuation. Prominent non-UK tech companies listed in London include Network International (UAE), Trustpilot (Denmark), Kaspi (Kazakhstan), Avast (Czech Republic) and Tiny Build and Boku (USA).
Those aspiring to adopt the world’s highest corporate governance standards and benefit from inclusion in premium equity indices such as the FTSE 100 & 250 series can choose to have a Premium Listing. A Premium Listing in London means that a company is viewed as a very high-quality investment. Recent examples are the Danish global review platform Trustpilot, the fashion brand Dr. Martens and the cyber security company Darktrace.
Some Indian founders may wish to tap into London’s global investor base but also to maintain control while scaling. In this case, a Standard Listing provides this degree of certainty through dual class shares while also holding the attractive future option of moving onto the Premium segment, where it will have the ability to qualify for the FTSE indexes and access further pools of capital.
Smaller, growth-hungry firms can look to AIM, which has become the world’s most successful growth market and currently attracts businesses from 75 countries. Over its 25 years, AIM companies have raised £121bn; 38% at admission and 62% through further fundraising, highlighting the long-term nature of support provided by investors to companies on the market. Today, 179 of its 837 companies are incorporated overseas – with primary operations taking place in 78 countries, including India. On AIM you can IPO at a significantly smaller size compared to the US markets. In recent years, the average market capitalization of an AIM company at IPO has been $120m, compared to nearly $1bn on Nasdaq.
For more than 150 years, investors have looked to London’s investment funds market as a rich source of innovative and non-correlated income opportunities. Indian funds with underlying income generating assets, such as solar energy & wind farms or toll roads, can tap into public investors through London Stock Exchange Specialist Funds Segment.