Western investors are keen on investing in the shares of growing Indian companies, a senior official of London Stock Exchange said on Thursday while inviting more domestic firms to raise capital from the world's premier bourse.
"Western investors are demanding more exposure to Asia's economic powerhouses and impressive businesses that are springing up here and elsewhere. Of course, it's no surprise that western investors want access to your companies," Martin Graham, director of market services at LSE, said at a Confederation of Indian Industry conference in New Delhi on Thursday.
Referring to Budget announcements of Finance Minister P Chidambaram, who visited LSE last month, Graham said India's economy grew 6.9 per cent in 2004 in contrast to Europe's 1.8 per cent. "India is growing fast and everyone seems to want a piece of the action."
Quoting a recent survey, he said, "India came third, ahead of the UK as the most attractive place for FDI."
This speed of development has created, and will continue to create, renewed pressure for additional sources of capital for higher levels of both public and private investments.
But around the world, there are thousands of successful companies with the potential to grow at a rate that outstrips the capacity of their domestic capital market to supply the much needed finance, he said.
If the desire of Finance Minister Chidambaram to be known as "investment minister" is to remain anything other than a noble aspiration, Graham said, "New sources of finance will have to be found to enable Indian companies to grow from regional players into truly global leaders."
"We believe there is an abundance of successful companies in India with strong potential for whom listing on an international market could bring vital access to deeper pools of capital for expansion," Graham said.
Accessing overseas capital market provides an opportunity for companies to educate investors about their growth ambitions and prove that they can fulfill the obligations, for example in terms of governance standards obligations of world leaders in their sector.
Graham also said international listing helps firms fund expansion in their existing or new markets and raise capital for R&D to fuel future growth.
Overseas listing also provides capital to fund cash-based merger and acquisition, with the ability to use shares as acquisition currency.
Moreover, a listing can also provide the current owners of the business with an appropriate exit route especially for firms funded by venture capital, whose owners often find capital market as a way to realise their investment, allowing the funds to be recycled into new start-ups.
"Once an Indian company has made a decision to list, there are really only two options available to them -- London and New York," Graham said.
Putting forward a strong case for Indian firms to list on LSE, Graham said, "New York can provide access to US retail investors but London is a far more international financial centre with a mature and sophisticated institutional investor community."
The main attraction of LSE is the standard of market regulation and corporate governance.
"As more Indian companies develop into global leaders, they will need to demonstrate that they too adhere to international standards of disclosure and corporate governance," Graham said.
Citing a McKinsey survey, he said, "Investors are willing to pay a 23 per cent premium for Indian companies that exhibit good corporate governance."
"IPO market is improving and there is now a big appetite for investment in Indian companies from western investors," he said.
However, he warned "these same investors are more concerned than ever before about levels of risk. If Indian companies can demonstrate world leading standards of corporate governance, they will be able to access the capital investment on offer in the international capital markets."
"Currently 18 Indian companies have their equity or depository receipts on our market compared with three for NASDAQ and eight for NYSE and they come from a variety of sectors including telecom, automobiles, steel and oil," he said.
