IFR India Offshore Financing Roundtable 2016
IFR was back in Mumbai in September to host another excellent roundtable, on this occasion focusing on offshore activity in the country’s equity capital markets and likely provenance of international deal flow and issuance.
Of course, international investors continue actively to patronise India’s domestic markets through existing foreign institutional licensing mechanisms, but one of the strands of the discussion focused on reasons why issuers might want to consider looking outside BSE/NSE listings, especially at a time when in a parallel universe debt investors are looking at offshore rupee fixed-income opportunities in the Masala bond market.
The depositary receipt market, a tried, tested and very efficient formula for offering international investors access to Indian equity, was of course given a boost from the recent package of reforms. But there continue to be operational factors to iron out, not least around capital gains tax, which have kept this market in abeyance. But the expectations are that remaining issues will be clarified in the next budget, which will be a boon for dotcom and tech companies keen to access offshore markets to realise what they perceive will be better valuation overseas.
A question running through the discussion was whether Indian companies need to look outside of their domestic market not just to gain investor diversification benefits or engage in upside valuation arbitrage but to gain access to a more apposite peer group that they simply can’t find at home or companies whose business models are better understood in other jurisdictions.
This is arguably the case for intellectual property-driven businesses, which is a focus of the Swiss stock exchange, for example, which was represented on our speaking panel; so it’s Indian pharma companies holding IP patents in international offshoots or looking to carve out their research arms and listing those parts of the business. SIX Swiss is also focusing on companies that have international operations they want to grow and which might benefit from direct equity financing through autonomous subsidiaries as a matter of gaining increased visibility.
Another focus was the extent to which InvITs will catch on as a way of bringing yield-conscious long-term capital into Indian infrastructure. It’s early days for this new product but expectations remain high. As deals start to emerge, those who support its evolution are confident that as it becomes clearer that investors can gain access to long-term stable project cashflows without development risk – which remains in the realm of banks and promoters – interest in it will snowball, again assuming outstanding taxation issues are resolved.
Generally speaking, speakers are comfortable with the status quo not just in Indian ECM but in the economy as a whole. GST has been introduced; succession at the RBI was seamless, the consumption story is looking positive, the road-building programme is moving ahead and expectations that the private investment story will move forward as the capex cycle hits its stride remain intact. The government needs to push to operationalise its reform agenda on a more accelerated schedule but broadly speaking optimism around the India story abounds.