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India's white elephant: start-up listings

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By John Loh
30 Oct 2018

India’s securities regulator has reworked the much-maligned Institutional Trading Platform (ITP), giving it a new name and more flexible rules in the hopes of attracting technology start-ups. But like its last iteration, the reformed listings platform is probably doomed to fail.

If this feels like déjà vu, that’s because it is. GlobalCapital Asia wrote two years ago that the ITP, a platform that allows small companies to raise capital, should be scrapped after zero take-up from issuers.

While that hasn’t happened, the Securities and Exchange Board of India (Sebi) is now claiming that things are different.

It has proposed a number of changes after hearing recommendations from an industry group formed to look into the ITP’s failures. Among the changes mooted are a new name — the Innovators Growth Platform. The platform is expected to be housed under India’s Main Board, with the minimum period for migration cut to one year from three. A number of investor curbs will also be removed.

The changes are well and good, except they are skin-deep. Sebi should realise by now that if it truly wants to move the needle on start-up listings, it will not be enough to tweak at the margins.

The new plans lack the ambition and imagination needed to be a true catalyst for the sector.

Issuers have always gone to list where they have the most captive investor base and liquidity, and India is unlikely to be able to build this from scratch by offering companies a pale imitation of the Nasdaq.

Think bigger 

It would be better for the regulator to instead focus on another initiative it is pursuing, namely an overhaul of the ban on Indian companies listing offshore, for which an industry group has also been convened to provide advice.

If anything, Sebi needs to adopt the kind of big-picture thinking of its Hong Kong counterpart, which has resulted in the biggest reform to its listing regime in years. The Hong Kong bourse gave the go ahead for IPOs of dual-class shares and lossmaking biotechnology firms this year, giving the exchange a seat at the table in China’s new economy.

India’s economy too is undergoing such a renaissance into the digital future.

Sebi is on the right track in trying to create a viable fundraising venue for its fledgling tech sector. But the fact remains that India’s biggest unicorns in the vein of Flipkart and Paytm already have access to all the private capital they need, and in the public market, they can have their pick of any listing venue in the world by selling depositary receipts.

The IGP’s niche then will be the smaller and far less profitable slice of India’s start-up community, which are not fit for the SME Board and certainly out of reach to the Main Board. 

Sebi needs to think a lot bigger if it wants the new platform to make a difference in start-up fundraising and attract high-profile issuers. Otherwise, the IGP will just end up as another black mark on the regulator’s to-do list.

By John Loh
30 Oct 2018