In August, MakeMyTrip Ltd became the first Indian company in eight years to list on the Nasdaq after a primary issue. Eric D. Landheer, the Mandarin-speaking head of Nasdaq OMX Group Inc.’s Asia-Pacific operations, talked to Mint about the significance of the development during a recent trip to India. Edited excerpts:
MakeMyTrip Ltd was the first successful Indian initial public offering (IPO) on the Nasdaq after a long time. Why was there such a long gap and what will be the impact of this IPO?
We don’t compete with the local markets, we cooperate. We believe development of local markets is a positive thing. A domestic listing does not necessarily preclude an overseas listing and vice versa. I believe one of the main reasons we haven’t seen any listings from India is that local markets have developed significantly.
That begs the question why do companies go overseas at all. I believe, in MakeMy Trip’s case, they believe they are an innovative growth company that was going to be able to tell an international story and give overseas investors an opportunity to participate in the economic growth story of India. They are the best performing IPO in the United States this year. Given that performance, it renews interest among entrepreneurs in India to re-evaluate whether or not they go overseas. It reinvigorates the idea of a potential listing overseas.
In an Indian context, what sort of companies would attract investors in the US?
I think the true story here is the economic growth miracle of Asia-Pacific in general and India and China in particular. There is a lot of choice from China to participate in the domestic growth story. Right now, there are few choices from India that allow retail investors in the US to participate in the growth story. I also believe anything related to the economic growth story in India, in particular the growth of the middle class, growth of the consumer spending power is something that will be attractive to US investors going forward.
That is a wide spectrum of companies.
Absolutely. There are a whole slew of industries that are going to benefit from the growth in the spending power of the consumer.
We had 35 new listings last year from greater China (including Hong Kong, Taiwan and Macau). Several of them were IPOs and several of them were upgrades.
This year, we have had 30 IPOs from Asia-Pacific, 29 of those coming from greater China and one from India. We are generally seeing the bulk of the growth coming from China. China is our single largest overseas market. With the listing of MakeMyTrip, I am optimistic this will reinvigorate the Indian market for us and enable more and more companies to consider the US as a potential listing destination.
The US has gone through a choppy cycle in the last few years. In terms of risk, how do investors perceive paper coming from China or India?
Potential destination: Eric D. Landheer says MakeMyTrip’s Nasdaq listing will lead to more companies considering a US listing. Pradeep Gaur/Mint
I certainly think this is a little higher on the risk spectrum in terms of the average investor. The reality is if you are seeking growth, you have to seek growth outside the US for the most part right now. You can still find innovation in the US and innovative growth companies in the US. However, the bulk of consumer growth stories and the near- to mid-term growth stories are going to come from the most active and dynamic markets in the world which are out in Asia-Pacific.
Is it largely institutional investors or more retail investors who respond to paper from Asia-Pacific?
It is a mix of the two. The United States market is somewhat unique in that it is over 90% institution-driven. Now, that can be a bit skewed because you are actually including mutual funds, though in many cases they represent the retail investors. So, I would say in the case of most of these companies, when they initially go out, the guy they are targeting is the institutional investor when they build their books and to a lesser extent the retail investor. But I think for long-term interest you need to have a mixture of both.
A couple of years ago, you had in a presentation said companies (from Asia-Pacific) need to work on their public relations. What were you trying to convey?
What I specifically was stating is that companies that have strong fundamentals and don’t communicate their stories effectively are not going to maximize their valuation. Companies that have great communication but don’t have the fundamentals to back it up are also not going to maximize their valuation. This is a very basic thing to say. But you would be surprised how many entrepreneurs—I don’t think as much in India, but in other parts of Asia—do not realize this fundamental fact.
They need to communicate better and they need to have a strong investor relations component to their business. It is an area of their business that is worth the investment.
Relatively speaking, you don’t see that as a problem Indian companies face?
I don’t. Obviously in India you already have fairly stringent corporate governance rules. I think the communication level and the ability to communicate with foreigners is a bit stronger here than parts of Asia where English is not a primary or secondary language. The other factor that works in India’s favour is the amazing amount of education, in particular, overseas education, that many CEOs (chief executive officers), CFOs (chief financial officers) and entrepreneurs have or even here domestically in the finer universities. They have gained the international knowledge.
Based on your experience, what do you see as the principal shortcoming Indian entrepreneurs will have to address if they have to reach out to investors in the US?
I think there is perhaps a bit of sense in the US, or maybe it is just me because I follow it a little more closely, that there is not enough stringent enforcement of rules. And that there are exceptions made for certain people when it should be black and white across the board. That I would say, to me, is the biggest issue of perception.