“Hyundai listing its India unit with such a large issue size is definitely a strong indication of the increasing depth and appetite of Indian capital markets, with global business groups focusing more on the country as a market,” said Gaurav Sood, managing director of Equity Capital Markets at Avendus Capital.
Sood mentioned that the trend of more multinational corporations (MNCs) considering listing in India will likely continue. This is due to factors such as greater ease of doing business and the untapped consumption potential in the world’s most populous nation.
Mint spoke to lawyers and investment bankers who also noted a rise in MNCs evaluating such options. Besides South Korea’s Hyundai, which is preparing for a record ₹25,000 crore initial public offering (IPO), LG Electronics and Italy’s component maker Carraro are also considering similar moves, according to media reports.
However, this is not the first time an MNC has listed in the country. Previous examples include Japanese automaker Suzuki Motor Corporation (unit Maruti Suzuki India Ltd), British consumer goods company Unilever (Hindustan Unilever Ltd), Swiss food and beverage maker Nestle (Nestle India Ltd), and Colgate-Palmolive (India) Ltd, the unit of US oral hygiene company Colgate-Palmolive.
Valuation Benefits
Siddharth Shah, a senior partner at Khaitan & Co, said that strong brand recognition with Indian consumers, lower cost of capital compared to transferring funds from overseas markets, and lower taxes on capital gains after listing for future monetisation are key benefits for foreign companies to consider listing in India.
The Indian markets offer much better valuations than other overseas markets, Shah said. Sood also mentioned the increase in valuations. “We have seen Indian-listed subsidiaries of foreign parents generally trading at almost three times the valuation of the parent,” he said, adding that this has encouraged global groups to unlock value in India and ride the “growth story.”
Different markets have varying dynamics and growth drivers. Sometimes, subsidiary valuations may not be fully reflected in the parent company’s valuation, and listing can help unlock this value, said BNP Paribas’ Ganeshan Murugaiyan. This could also be useful for funding growth capital expenditures or as an acquisition tool in the domestic market, he added.
Experts said the rise in domestic manufacturing fueled by government schemes like production-linked incentives (PLI) has positioned India as a major hub. Global companies with extensive exposure to manufacturing see this as a strong competitive advantage and may consider listing their Indian subsidiaries, according to them.
Shah from Khaitan & Co said that there are more likely chances for such domestic listings in the manufacturing and consumer sectors. He noted that the success of the Hyundai IPO will greatly encourage other MNCs to exploit the potential of an Indian listing and expects this trend to continue as a way for them to monetise their investments in India.
“For some of these MNCs, India has turned out to be the biggest market in terms of consumption of their products, and listing here would almost come as a natural choice… lastly, the PLI scheme of the government may also be driving the growth in the manufacturing space,” Shah said.
Beneficial Ownership
Listing in India, though, will have its challenges. Mint reported earlier this week that six unlisted Indian units of MNCs are under the scrutiny of Registrars of Companies (RoCs), which are reviewing company disclosures and publicly available shareholding information of group companies to determine their ownership.
Besides LinkedIn and Samsung, the Indian authorities may expand their ownership checks to the local arms of more MNCs.
Foreign MNCs should expect increased scrutiny and will need to ensure meticulous documentation and timely disclosure of the significant beneficial ownership even when such individuals do not directly hold shares or voting rights in the Indian subsidiary, said Siddharth Mody, a partner at J. Sagar Associates.
While this could complicate corporate governance for MNCs with complex ownership structures, the approach of RoCs will prompt foreign companies to reassess their corporate governance and reporting practices in India.
“This could involve revisiting their reporting channels, financial control mechanisms, and the role of executives in subsidiary operations to mitigate the risk of non-compliance and associated penalties,” Mody said.
With significant beneficial ownership rules applicable to all kinds of companies, foreign companies will have to assess their disclosure obligations in detail while deciding to list in India, he added.
Disclaimer: The views and investment tips expressed by investment experts on Sharepriceindia.com are their own and not those of the website or its management. Sharepriceindia.com advises users to check with certified experts before taking any investment decisions.
