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India set to change listing rules for start-ups

James Crabtree

India is set to agree a shake-up of listing rules for start-ups this week amid rising fears of an exodus of fast-growing technology companies to Singapore and the US, according to people familiar with the situation.

The Securities and Exchange Board of India (Sebi), the country's markets regulator, is expected to green-light the rules at a meeting on Tuesday, paving the way to launch a new trading platform later this year, with lighter regulation to attract listings from sectors such as ecommerce.

The move comes amid rising hopes that India's burgeoning start-up scene may soon spawn a plethora of public offerings, buoyed by a record recent funding influx from global venture capital groups and heady expectations of future growth in the Indian internet economy.

But it also underlines worries that regulatory restrictions are pushing Indian start-ups to redomicile abroad, especially to Singapore, in turn increasing the odds that tech groups may eventually choose to list on exchanges abroad.

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About three-quarters of start-ups receiving early stage financing in India this year will redomicile to Singapore, partly because of regulations making it easier to accept funding from global venture groups, according to iSpirit, a Bangalore-based software trade body.

Uday Kotak, the billionaire founder of Kotak Mahindra bank and one of the country's most respected financiers, warned that far less onerous listing rules were needed to tempt local technology businesses to tap domestic capital markets.

"We need to make it clear that we want people to raise on an Indian platform or else we will lose our market to the Nasdaq, or Singapore, or London," he said.

Many of India's largest ecommerce companies, such as online retailers Flipkart and Snapdeal, are eventually likely to list in America, seeking a blockbuster Nasdaq listing in the mould of China's Alibaba.

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Indian policy makers are nonetheless keen to ensure that most other domestic tech companies choose to list domestically.

At its meeting this week, Sebi is expected to agree to create a new institutional trading platform (ITP), which will operate on India's two existing stock exchanges.

The new platform will not be accessible to retail investors, and will therefore do without many protections designed to guard their interests.

In particular, the ITP will remove requirements that companies be profitable for three consecutive years before flotation, a rule many young start-ups struggle to meet. Sebi declined to comment.

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"This is a big deal," said Sharad Sharma, a co-founder of iSpirit. "It will open the door to tech IPOs, especially for start-ups focused on the Indian market."

Analysts hope the move could also bring some of the vibrancy of India's market for start-up venture funding into its dormant primary markets, which have been stagnant since 2010, and show few signs of reviving.

Ola, India's leading taxi-hailing app, has brought in roughly $650m from private investors over the past year, much more than has been raised through all of the country's IPOs put together over the same period.