India's market regulator is planning rule changes that will make it easier for homegrown start-ups to list their shares on local bourses, sources involved in the process said, helping domestic investors to bet on the country's booming online economy.
While many of India's largest online players are set to list in the coming year or two as they mature, none is currently expected to make its market debut at home. That could mean a significant loss for local exchanges and investors: marketplace Flipkart has prompted valuations of as high as $11 billion.
To remedy this, sources said, the Securities and Exchange Board of India (SEBI) is considering easing rules on mandatory disclosure for the draft prospectuses of Internet-based firms.
One of the main items that could be scrapped is the need to detail the use of proceeds from the initial public offering of shares, they said. This is an obstacle particularly for technology start-ups, that don't usually use the cash to invest in plants, factories or mines.
"A lot of them operate without any tangible assets," said one of the sources directly involved in the process.
"That creates an issue when declaring the use of proceeds (in the draft prospectus)."
The source said other issues including accounting and financial reporting practices used by the e-commerce firms were also under review to ease pre-IPO disclosure requirements.
An official at SEBI said separately that the regulator's chairman, U.K. Sinha, has held meetings with startup executives and bankers to discuss the proposed changes.
All the sources declined to be named, as they were not authorised to speak to the media given the new rules are still being finalised. A spokesman for SEBI did not respond to Reuters calls and e-mail requesting comment.
India is seeing a boom in private investments in start-ups and a large number of funds including Temasek Holdings, U.S.-based Accel Partners and Japan's SoftBank Corp have invested billions of dollars in online firms.
Most of these private equity investors are expected to exit from their portfolio companies through share listings, putting a spotlight on the sector and the potential IPO candidates.
Many Indian start-ups including online marketplaces Flipkart and Snapdeal are expected to be preparing for IPOs, hoping to raise capital and to give some of their early backers an opportunity to cash in on investments worth billions of dollars.
But bankers are expecting them to explore overseas markets, mainly U.S. exchange operator NASDAQ OMX Group Inc. That is due to regulatory requirements in India as well as the difficulty in finding valuation benchmarks on exchanges on which no comparable rivals trade.
Investment bankers said the SEBI rule changes, if implemented, may encourage some of these companies to consider a listing at home, giving Indian investors the chance to put money into a sector that is expected to boom in the next few years as more Indians shop, live and work online.