Your domestic market is headed for a big slowdown. The political situation stinks. Outside investors either think your country is turning into an international pariah or lump it in with all the other Asian losers. So what's the next step for your company? You list on the New York Stock Exchange.
Hard to believe, but true. Just when India's reputation is at a low, many of its top companies, in industries ranging from high tech to chemicals to drugs, are planning to list American Depositary Receipts in the U.S. or are sounding out advisers about the possibility (table). They may list on the Big Board or on NASDAQ. If they succeed, it will be a testimony to investors' ability to forget their Asiaphobia and pick stocks on their merits.
A FIRST. Many Indian executives have long wanted to list overseas, either to tap new capital or to pursue foreign expansion by creating a higher profile for their companies. But none of this seemed very likely until Aug. 7, when the government cleared Infosys Technologies Ltd.'s application to list ADRs in the U.S.
The $75 million listing, due this fall, will make the $70 million software services provider the first Indian company to be traded on a U.S. exchange. Bombay-traded shares in Infosys, considered the premier company of its type in India, rose 6.7% on the news, to near $65. "This will reduce the negative sentiment about Indian investments," says Bharat Shah of Birla Capital Asset Management, which counts Infosys as its largest holding. BT Alex. Brown, Montgomery Securities, and Robertson Stephens will handle the offering.
Politics may have played a role in Infosys' victory. The coalition government of the Bharatiya Janata Party has turned off investors with the nuclear tests. By yielding to the pleas of India software executives to promote their industry, the BJP can mend some fences with the international community and claim an enlightened view of free markets. The government will now exempt the software sector from tariffs and allow software firms listing overseas to issue dollar-denominated stock options, vital for retaining top talent.
The companies are doing their bit, too. With an eye to listing, Infosys has been booking sales and profits according to U.S. accounting rules and the disclosure requirements of the U.S. Securities & Exchange Commission. Others are doing the same. Petrochemical maker Reliance Industries Ltd., which at $3.4 billion in sales is a giant by India standards, is moving to comply with SEC regulations, part of its plan to make up for an unsavory past and prepare for a New York offering. Pharmaceuticals maker Ranbaxy Laboratories Ltd. is also preparing its books to meet Western standards.
It helps that the Indian companies hoping to list all dominate their local markets, get a lot of overseas revenues, or operate in the software industry. Conglomerate Wipro Ltd. has a booming software division as well as a stable of well-known consumer brands. Infosys and other software firms such as NIIT Ltd. have contracts with multinationals like Nortel, British Airways, and Bankers Trust that guarantee hard-currency earnings. Ranbaxy benefits from India's refusal to sign certain trade treaties. As a result, it can make prescription drugs in India without fretting about patent violations.
KNOWN QUANTITY. The software firms are leading the way in listing partly because their products and services must meet global standards. "The Indian corporate landscape is difficult to fathom, but [India's] software industry is almost unique in that it does business by the Western rule book," says Alfred Elbrick, a managing director at BT Alex. Brown Inc. in London. The software firms also think that U.S. investors understand their industry better than local investors. Says J. Shanker, treasurer at software maker Wipro, "The U.S. market values intellectual property rights better than the Indian market."
There are obstacles, of course. More disasters in Indian politics could turn investors off these equities. More important, many may not list until early next year, so there's no telling what kind of slump in the Dow or NASDAQ could derail the plans. But for now, this clutch of companies is displaying an optimism and ambition rare on the Asian scene.