A route worth considering

Videocon d2h’s recent listing on the Nasdaq provides useful lessons. Ashok Lalwani and Kyle Pilkington explain

In December 2014, a new scheme became effective allowing unlisted Indian companies to list depository receipts on offshore exchanges in certain specified jurisdictions without a prior or simultaneous listing on a domestic stock exchange. The prior listing requirement was removed primarily so as to increase sources of liquidity for companies in the face of a perceived weak domestic capital market.

Few takers

Despite the setup of the depository receipts scheme, few Indian companies considering an IPO have jumped at the opportunity to list overseas. While listing overseas has advantages, such as providing access to markets with deeper liquidity, lower cost of equity capital and a broader investor base, Indian companies looking to list have still overwhelmingly chosen domestic exchanges. There are a few reasons for this. Sentiment in the domestic capital markets has improved considerably since 2013, making offshore options less of a necessity. Furthermore, there has been uncertainty with respect to treatment of companies, and investors in companies, that are listed outside India. For example, there have been questions with respect to the tax treatment of holders of securities listed overseas.

Innovative structuring

Despite these perceived uncertainties, Videocon d2h, a previously unlisted direct-to-home television services provider, recently used the depository receipts scheme to successfully list in the US on the Nasdaq, through an innovative structure.

Silver Eagle Acquisition, a special purpose acquisition company (SPAC) listed on the Nasdaq led by renowned media executives Harry Sloan and Jeff Sagansky, identified Videocon d2h as an investment target and signed an agreement to purchase around 30% of the company. The transaction involved listing Videocon d2h’s American depository shares (ADSs) on the Nasdaq and distributing them to Silver Eagle’s shareholders and warrant holders who approved of the transaction. Silver Eagle was dissolved after the transaction, with non-approving shareholders being paid out in cash.