INSUBCONTINENT EXCLUSIVE:
An IPO in India also offers startup investors a potentially more lucrative exit avenue
(Photo: Shutterstock)4 min read Last Updated : Oct 10 2024 | 9:03 AM IST
India's scrapping of a time-consuming compliance step will
accelerate the pace at which Indian startups domiciled abroad shift back home to participate in the country's listing boom, according to
bankers, lawyers and investors.
Since last month, foreign-based companies no longer require approval from the backlogged National Company
Law Tribunal for a so-called "reverse flip" merger with a domestic subsidiary, effectively reducing the time the process takes to about
three to four months from at least 12 to 18 months previously.Click here to connect with us on WhatsApp
Many of the dozens of Indian
startups that once chose to be based abroad for better access to capital and smaller tax bills are now queuing to return home from financial
Razorpay, Pine Labs and KreditBee are in advanced stages of completing the reverse flip, Zepto, Eruditus and InMobi are also trying to
finish the merger process in the coming months in preparation for eventual IPOs, multiple sources said.
The sources spoke on condition of
anonymity because they were not authorised to speak publicly.
"India is a home market and a place where everybody knows and understands us
From a listing perspective, it makes sense to be in India," said Harshil Mathur, the co-founder and CEO of Razorpay.
The US-domiciled
online payments firm was valued at $7.5 billion as of its last fundraising in December 2021 and is looking to shift to India.
IPOs in
India including by startups Ola Electric and FirstCry have raised $9.17 billion in the first nine months of this year, up from $4.68 billion
in the same period last year, according to LSEG data, making the country a rare bright spot for equity capital raising by companies in the
Asia-Pacific region.
"With the IPO market thriving, a reverse flip makes sense
Moreover, the streamlined merger process, designed to facilitate swift and efficient scheme approvals without court intervention, further
supports this strategic move," said Mehul Shah, a partner at corporate law firm Khaitan & Co.
Before the rule change, only a handful of
companies such as Walmart-backed digital payments firm PhonePe and online investment platform Groww had engineered a reverse flip.
Those
processes concluded in October 2022 and March 2024 respectively, though the timing of their India IPO plans remains unclear.
PhonePe had
to pay about $1 billion in capital gains taxes to the Indian government to complete the reverse flip, something that its co-founder and CEO
Sameer Nigam once termed as a "very stiff shock".
Groww took "several years to finish the process", an executive said on condition of
anonymity.
The startups did not respond to requests seeking comment.
"Even without this regulation, last we saw eight to 10 new-age
companies were on the path to reverse flip
So, this will encourage (even more of them to follow suit)," Gaurav Sood, head of equity capital markets at investment bank Avendus, said of
the rule change.IN INDIA WE TRUST
The homecoming of the IPO-bound startups is understandable given India's requirement that only local
companies list on its exchanges and its ban on dual listings, along with a thin track record of such companies listing overseas.
Moreover,
India's central bank and other regulators prefer local firms over their foreign counterparts for key operational licenses such as those
required by fintechs, according to industry sources.
Stricter government scrutiny of foreign inflows and business deals have also raised
compliance risks for startups, the sources said.
The Reserve Bank of India and India's market regulator did not respond to requests
seeking comment.
An IPO in India also offers startup investors a potentially more lucrative exit avenue.
"There is a strong appetite for
tech stocks among Indian public investors, retail investors included," said Sandeep Patil, partner, and Asia head at venture capital firm
QED Investors.
But while India has eased reverse flipping norms, it is unlikely to unveil related capital gains tax concessions.
India's
Commerce Minister Piyush Goyal told the Economic Times in March the Indian startups shifting back home would have
to pay taxes.
"Why
they want to come back is not an altruistic motive
They want to list in India because here's where you get the valuations," Goyal said.
His office did not respond to Reuters' requests for
content is auto-generated from a syndicated feed.)First Published: Oct 10 2024 | 9:02 AMIST
