Baggage check for overseas listing

On a Sunday afternoon, after a good lunch, as the family sat around enjoying the cool breeze, pat dropped a question into this scene of contentment — “Dad, where are we going for the holidays?”

It was the teenage daughter’s poser to the finance controller of a rapidly growing private company. Caught unawares, he, however, generously replied, “Darling, you decide… USA, Europe or Singapore...”

Now the son jumped up: “USA, without a question. That’s where the fun stuff is!” The daughter protested, “No, Dad. Europe... it is posh, fashionable, and historical,” even as she mentally visualised picking up a few fashion tips in Paris and London.

“Stop dreaming, you two,” came their mother’s command. “Going to the US or Europe is an adventure alright, but we need to be sure what we want to do there, and whether we will have a good time together as a family. Our neighbours have been trying to get a US visa and were turned down twice. We don’t want to be disappointed. This is our first travel overseas and we have to plan well. Let’s not rush.” Thus, calm was restored.

At work the next day, the finance controller was requested by the young and dynamic managing director to attend a meeting to discuss a confidential project. In the MD’s room, he saw three smartly dressed, young professionals talking about how the company could be a successful listed entity overseas. The industry in which the company operated was new in India, and while the business model was strong, the peer group was located overseas and an attractive valuation was possible only over there. Being listed on an overseas stock exchange would surely boost the company’s profile.

Pulling the controller to one side, the MD said, “It seems straightforward to me. We have a great story, and it seems like we do not have to do much. I need you to help get it done quickly.” Leaving the specifics to be worked out by the group, the MD left.

Later, the controller briefed the MD on some action points from the meeting.

As the entity was still a private company in India, it was necessary to set up an overseas holding company as the listing vehicle;

As most of the operations would continue in India, the evolving tax legislation related to gains from transaction in these overseas shares demanded greater attention;

The Board of directors should be expanded to include a majority of non-executive directors, which would mean ceding control to some extent;

The financial statements should be prepared under US GAAP or International Financial Reporting Standards for at least two years;

The international legal counsel should be met to evaluate the ongoing reporting and regulatory obligations of each listing venue;

The estimatedcost of the transaction was approximately 6-8 per cent, depending on the IPO structure and jurisdiction.

Sensing that the MD was a bit dejected by this information, the controller said reassuringly, “It doesn’t mean that we are not considering an overseas listing — just that we should not rush into this. We should plan and do it right, and drive the value. We will do it.” Even as he said this, the finance controller was reminded of the conversation he had earlier with his family, and his wife’s counsel.

The author is Partner, Price Waterhouse & Co

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