Dual listing may not be mandatory for startups in foreign exchanges
NEW DELHI: The government may not insist on secondary listing in India for start-ups issuing shares in foreign exchanges. Officials said there had been some thinking that start-ups who had huge market capitalisation should share their value increase with domestic investors by being asked to list locally even if they had listed abroad.
However, in discussions with domestic start-ups, there were persistent objections with many pointing out that listing in two countries would mean huge regulatory and compliance costs on firms which were struggling to break even.
Most start-ups despite huge valuations based on funding they have attracted, remain unprofitable for a long gestation period. “Typically a start-up manages to build up huge revenue base but makes losses for 3-5 years after being set up as it takes a lot of cash burn to set up the infrastructure needed to scale up operations,” said finance ministry officials.
Listing in India is tough for a start-up as rules stipulate that they maker a profit of Rs 15 crore for three years before they can list. However many countries allow loss making start-ups to list and raise capital. “Dual listing is a costly business which is why start-ups prefer single listing and mostly abroad where rules for initial listing are easier,” said Swapan Sarkar, past President of the Indo- American Chamber of Commerce.
Last month, amendments to the companies act allowed certain classes of securities in foreign jurisdictions even before listing in India. Earlier rules forced companies to list in a India before venturing abroad. “The problem for Indian start-ups depending solely on Indian funding is that despite many having great ideas, they are capital short and there aren’t enough funds here to go around for all of them.
Which is why funding from venture capital funds abroad is necessary as well as listing abroad to raise more money becomes important,” said Sarkar. Officials, however, said at a later stage they may consider asking firms which cross a certain threshold in terms of profits, revenues and number of years to list in India.
What is secondary listing?
Dual listing refers to a listing of any security on two or more different exchanges. Listing in India is tough for a start-up as rules stipulate that they maker a profit of Rs 15 crore for 3 years before they can list. Many other countries allow loss making start-ups to list and raise capital.