Analysis-India’s regulatory reform could speed IPO-bound startups homecoming By Reuters

By Ashwin Manikandan and Haripriya Suresh

BENGALURU (Reuters) – India’s scrapping of a time-consuming compliance step will speed up the pace at which Indian startups based abroad will return home to participate in the country’s listing boom, bankers said. lawyers and investors.

Since last month, foreign-based companies no longer need the delayed approval of the National Companies Tribunal for a so-called “reverse flip” merger with a domestic subsidiary, effectively reducing the time required for the process to about three to four months from at least 12 to 18 months in advance.

Many of the dozens of Indian startups that once chose to be based abroad for better access to capital and lower taxes are now queuing up to return home from financial hubs like the US and Singapore because of better prospects initial public offering bonds in a country that does not allow double registrations.

While Razorpay, Pine Labs and KreditBee are in advanced stages of completing their inversion, Zepto, Eruditus and InMobi are also seeking to complete the merger process in the coming months in preparation for potential IPOs, multiple sources said.

The sources spoke on condition of anonymity because they were not authorized to speak publicly.

“India is a home market and a place where everyone knows and understands us. From a listing perspective, it makes sense to be in India,” said Harshil Mathur, co-founder and CEO of Razorpay.

The US-based online payments firm was valued at $7.5 billion in its last fundraising in December 2021 and is looking to move into India.

IPOs in India, including by startups Ola Electric and FirstCry, 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 data LSEG, making the country a rare bright spot for capital raising. of companies from the Asia-Pacific region.

“With the IPO market booming, a reversal makes sense. Additionally, the streamlined merger process, designed to facilitate quick and efficient scheme approvals without court intervention, further supports this strategic move,” said Mehul Shah, partner at corporate law firm Khaitan. & Co.

Before the rule change, only a few companies, such as Walmart-backed digital payments firm PhonePe and online investment platform Groww, had engineered a reverse change.

These processes ended in October 2022 and March 2024, respectively, although the timing of their IPO plans in India remains unclear.

PhonePe had to pay about $1 billion in capital gains taxes to the Indian government to complete the reverse switch, something its co-founder and CEO Sameer Nigam once called a “very big shock.”

Groww needed “a few years to complete the process,” said an executive on condition of anonymity.

The startups did not respond to requests for comment.

“Even without this regulation, last time we saw eight to 10 new-age companies were on the inversion path. So this will encourage (and even more of them to follow suit),” Gaurav Sood, Head of Investment Capital Markets. Avendus bank, said about the rule change.

IN INDIA WE HAVE TRUST

The homecoming of IPO-related startups is understandable given India’s requirement that only local companies list on its stock exchanges and ban on dual listing, along with a poor track record of such companies listing abroad.

Moreover, India’s central bank and other regulators prefer local firms over their foreign counterparts for key operating licenses, such as those required by fintechs, according to industry sources.

Tight government control over foreign inflows and trade transactions has also increased compliance risks for startups, the sources said.

The Reserve Bank of India and India’s market regulator did not respond to requests for comment.

An IPO in India also offers startup investors a potentially more lucrative exit route.

“There is a strong appetite for tech stocks among Indian public investors, including retail investors,” said Sandeep Patil, partner and head of Asia at venture capital firm QED Investors.

But while India has eased inversion norms, it is unlikely to unveil tax breaks on capital gains.

India’s Commerce Minister Piyush Goyal told the Economic Times in March that Indian startups moving home would be

to pay taxes.

“Why they want to come back is not an altruistic reason. They want to list in India because that’s where you get the ratings,” Goyal said.

His office did not respond to Reuters requests for further comment.