India provides GPs with new exit route

Indian private companies will now be able to list offshore, without a simultaneous domestic IPO. 

Private equity firms will welcome the Indian government's effort to loosen controls over India-based private companies listing on offshore exchanges, according to a report from local law firm Nishith Desai.

In late November, a notification from India’s Ministry of Finance said that  Indian companies can now seek an offshore listing without having to fulfill the requirement of a prior or simultaneous domestic IPO, which has previously been the case.

Given the weakness of India’s capital markets, the requirement to list domestically as well has hindered private equity firms wanting to exit portfolio companies via IPO.

Since January 2011, 50 private equity-backed IPOs have failed in the country, according to Nishith Desai figures.

“Permitting Indian unlisted companies to list global depository receipts/foreign convertible currency bonds abroad is a welcome move for private equity investors. PE investors have a number of exit options in their investment agreements, IPOs being one of them.  [However], considering the uncertainty in relation to successful completion of IPOs, it has never been a very reliable exit route,” the Nishith Desai report stated.

However, while welcome news to GPs, the new regulation is also limited.

The relief from a compulsory domestic listing only lasts for two years and requires compliance with India’s foreign direct investment laws – allowing foreign investment in a company through these means to reach only 51 percent.

However, the changes will offer greater certainty to private equity firms hoping to exit and encourage domestic businesses to “seriously consider” offshore capital listings, Nishith Desai commented.

“These changes have the potential to have wide-reaching impact on unlisted Indian companies as well as on both domestic and foreign investors, by providing Indian companies new avenues to raise funds and exit options to PE investors, albeit in a limited manner.”