As a slew of startups including, Delhivery, Zomato, MobiKwik, PolicyBazaar, gear up to go public, the dual listing clause-- part of new regulations for overseas listing--may queer the pitch for them.

Over the past week, startups have gone back to the drawing board to understand the clause, which aims to keep Indian entities under the control of the country’s regulator.

Mint had reported on 11 September that the dual listing clause which has been heavily lobbied against, will force India’s firms considering overseas listings to to list their on domestic bourses.

This may lead to liquidity being spread across different countries, and result in higher taxation and compliance costs for startups.

“Dual listing will actually neither help startups nor the regulator. The cost of compliance of going public is significant, and some companies may struggle to meet the needs of one listing. With this dual listing clause the only option which companies have is to either list in India or list a newly created foreign holding company," said Santosh N., managing partner, D and P Advisory Services LLP.

A big challenge for startups looking to go public in India is Securities and Exchange Board of India’s (Sebi) clause which asks companies filing for IPO to maintain a minimum average operating profit of 15 crore for three consecutive years. Startups with parent holding entities in India will therefore find it tougher with the current listing guidelines because many planning to go public are not profitable yet.

Delhivery’s chief business officer Sandeep Barasia had earlier said that while the company is looking to go public by 2022, it will have to wait for Sebi’s final guidelines on overseas listings to finally choose the best market for an IPO.

Last week, foodtech unicorn Zomato said it plans to list its shares by mid-2021. For an overseas listing, this would seem comfortable but if they have to list in India, it would be a tight deadline.

Zomato didn’t respond to Mint’s queries.

While under the Issue of Capital and Disclosure Requirements (ICDR) Regulations, Sebi does allow loss-making entities to go public, they need to allot 75% of their net public offer to Qualified Institutional Buyers (QIBs) including insurance, mutual fund companies, and alternative investment funds.

This leaves only 25% of the net offer available to investors and high-net worth individuals, leading to less funds being raised by these startups from retail investors.

“The valuations PEs and VCs like Carlyle and Softbank (who have holdings in Indian unicorns) have agreed on for their investments in India is a notional valuation, and no one can actually back it. So definitely they need something like an IPO to vindicate their valuation. The problem is that after the entire WeWork and Uber (IPO) debacle, we don’t know whether whatever valuation that Softbank and its likes have pegged can be justified," added Aditya Jadhav, a chartered financial analyst and principal (Investments) at SIDBI Venture Capital Ltd.

A senior executive at AlgoLegal, an advisory firm for startups, said listing in India is far more complex for startups, compared to listing in other geographies, where jurisdiction has been simplified, keeping tech-IPOs in mind.

“Sebi will have to lower their thresholds and be more cognizant from a sector perspective, for listings. Standards can’t be the same for all sectors," the person said.

With the Reserve Bank of India imposing restrictions on allowing fixed returns to investors, VC and PE firms insist that startups incorporate their holding or parent companies outside India.

For instance, Flipkart incorporated a separate Singapore entity in 2011, with its Indian operations arm being a subsidiary of this foreign entity. As multiple startups follow this structure, they will look to go public through their international entities outside the ambit of the Indian regulator.

“Dual listing can be a boon for both investors and tech firms if the domestic listing norms mirror the kind of freedom that markets like NASDAQ and others provide. In India, we don’t have yet have the liberty to list tech stocks unless they fulfill the same norms as a manufacturing or a software development company with large contracts, and we have already seen many of these companies shift their domicile status outside of India to be able to access public markets overseas," said Anup Jain, MD, Orios Venture Partners.