For global firms, India IPOs are a honey trap

Samsonite SA

17/09/2024 12:00

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Una Galani
       MUMBAI, Sept 17 (Reuters Breakingviews) - It rarely
makes sense for a company to maintain more than one stock market
listing. Tell that to the growing list of multinational firms
rushing to float their local subsidiaries on Mumbai bourses.
They are shrugging off the additional costs and compliance
burdens to tap higher valuation multiples. They are also running
into a honey trap of sorts.
    South Korea’s Hyundai Motor  005380.KS  is gearing up for a
$3 billion initial public offering of its Indian operations, and
its compatriot LG Electronics  066570.KS  has hired banks for a
similar deal to raise up to $1.5 billion, Bloomberg reported on
Friday citing unnamed sources. 
    Success would allow global companies to crystallise the
worth of their fast-growing Indian operations, often at a higher
valuation than the parent company: MSCI India is trading at 24
times forward one-year earnings, above its 10-year average of 19
times, LSEG data shows. A listing would also hand them richly
valued stock they could use to strike onshore deals. Still,
there are risks.
        For one, emerging markets can quickly fall out of
favour. Consider the experience of global firms that rushed more
than a decade ago to list in Hong Kong to tap Chinese capital.
Names including luggage maker Samsonite  1910.HK , luxury
powerhouse Prada  1913.F  and skincare group L’Occitane
 0973.HK  are now either weighing going private or adding a
listing closer to home as global investors slash exposure to the
People’s Republic on worsening Sino-U.S. relations. 
    At least those companies have the option to retreat. In
India, going private is harder. Companies use a reverse
book-building process where minority owners can force exorbitant
premiums. The securities regulator introduced an alternative
method in June but it remains prescriptive on how companies
should be valued. 
    Hyundai and others also may find their Indian subsidiaries
complicate future decision-making. British energy company Cairn
floated its India unit in 2007 after discovering oil in the
state of Rajasthan. The parent was later slapped with a capital
gains bill after it transferred the Indian assets as part of an
internal reorganisation; a roughly $1 billion tussle with Indian
authorities lasted until 2022. 
    Though the publicly traded Indian subsidiaries of Unilever
 ULVR.L   HLL.NS , Nestle  NESN.S   NEST.NS , Suzuki Motor
 7269.T   MRTI.NS  and Pfizer  PFE.N   PFIZ.NS  are successful,
they are legacy structures and largely inherited. Global
companies that rush to list in the South Asian country may rue
the decision. 
    
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    CONTEXT NEWS
    South Korea’s LG Electronics has picked arrangers including
Bank of America, Citigroup, JPMorgan and Morgan Stanley for a
potential initial public offering of its Indian business that
could raise as much as $1.5 billion and value the unit at $13
billion, Bloomberg reported on Sept. 14, citing people familiar
with the matter.
    The share sale could take place as early as next year, the
report added.

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Graphic: Indian listed multinationals have outperformed    https://reut.rs/3ZmoAAx
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 (Editing by Antony Currie and Ujjaini Dutta)
 ((For previous columns by the author, Reuters customers can
click on  GALANI/   
una.galani@thomsonreuters.com))