Aerens group, a Rs 300- crore real estate player, plans to open 100 new malls over the next few years. This expansion spree will, of course, take substantial funding. However, the group is confident of being able to meet its requirements through a $400 million (around Rs 1,600 crore) IPO for the project. But therein lies the catch.

Instead of listing in India, the group plans to list in Dubai, Singapore or London Stock Exchange?s Alternative Investment Market (AIM). Just a few years ago, this would have been unthinkable for a company the size of Aerens. The stringent NYSE, NASDAQ or LSE listing norms would have kept the doors to these markets shut for such small companies. But with exchanges like AIM that place no restriction on the size, track record or trading history of the listing companies, such companies now have access to a world-class capital base.

Increasingly, one finds Indian companies listing on international exchanges . It is not just small companies but large Indian companies as well that are getting tempted by the sheen of the foreign markets. For instance, Genpact, a GE subsidiary and India?s largest BPO, listed on the US New York Stock Exchange (NYSE) in August this year. A year earlier, another BPO, WNS also listed on the NYSE. LSE also saw some action with several Indian companies like SBI, Reliance Energy and Bajaj Auto listed on it. In 2007 alone, Indian companies have raised over $1.5 billion on the LSE till now.

The trend only seems to be on an upswing with a number of companies planning to list abroad. Says Sanjay Hegde, executive director, PwC, ?We have been receiving enquiries from companies for listing abroad.? He adds that the reasons for the reigning trend include raising money, brand acquisitions abroad that require payment in local currency, the need for hiring quality people who need to be compensated with ESOPs, and foreign customer acquisition. The growing appetite for Indian paper and investment options in the international markets is also fuelling the trend. On LSE alone, Indian companies reached a record level of $6.4 billion in the first seven months of 2007 compared to $5.2 billion for 2006.

Contrary to popular perception, it is not only the big bucks that attract Indian companies to foreign exchanges. Says Siddharth Roy Kapur, EVP – Marketing, Distribution & Syndication, UTV, which listed its Motion Pictures arm on AIM, ?We expect 50% of the company?s business to come from UK. This listing suits us best.?

The recent sprint of M&As is yet another reason why Indian companies are looking beyond the Indian borders. Such companies feel the need to pay their international sellers in local currency. Agrees Roy, ?We are keen on active mergers and acquisitions in the future. We have business presence in the UK and will explore opportunities there. So strategically, a London listing made more sense for us,? he says.

The country where the exchange operates is yet another consideration. According to V Balakrishnan, CFO, Infosys Technologies, his company decided on US-based NASDAQ as it was where most of the global technology companies were listed. According to Genpact officials, the company chose to list at NYSE as most of its customers were based out of US markets. The reason behind a number of technology companies choosing US markets remains the same.

Presently, the European markets attract more of old economy stocks from sectors like shipping and metals while US markets attract more of the new economy sectors. A few companies do venture into markets other than the US and Europe, but largely, the action is still restricted to these markets. ?There are companies that chose to list on the Singapore and Dubai stock exchanges but Indian companies feel that they would have better access to investors by going to the US and Europe,? says PWC?s Hegde.

While no one can deny the benefits of a foreign listing, there are downsides to the phenomenon as well. By listing in foreign markets, one opens oneself to facing more litigation risk, especially in the US markets where the Sarbanes Oxley Act has made many companies wary. These laws have stringent guidelines that mandate more disclosures while the directors also face greater personal liability.

Experts also point out that the investors in these markets are more sophisticated and expect more from companies. Indian companies, therefore, will need to display more stable operations, make more disclosures and have to follow more stringent guidelines. Also, the foreign investors are less loyal than Indian ones. Indian investors may hold on to a Tata or a Reliance scrip in downturns but foreign investors will not do if greener pastures beckon.

Industry insiders point out that there are certain companies that wish to list abroad without listing in the country (as mandated by present guidelines) that have found an indirect route to beat the existing guidelines with such listings.

The route is simple: incorporate a holding company overseas, raise money at international exchanges and then use the proceeds in the country. ?Several listings over the last one year at AIM are of this kind. The government should do something to regulate this kind of money coming onto India,? says Prithvi Haldea, managing director of Prime Database. Industry insiders also point out that some insidious operators may be using this route to plug back illegal funds held in offshore accounts.

According to media reports, the Indian government is now considering allowing unlisted companies to list in foreign markets first. But market experts have reservations regarding such moves. They feel such listings may come at a cost to the Indian bourses. Haldea points out that when the present guidelines for letting only listed companies from India list abroad, it was primarily because of three concerns: one, the Indian markets were shallow and required more listings; two, increasing participation from retail investors was needed, and lastly there was a need to prevent mismanaged firms from tarnishing India?s image abroad.

These ground realities remain unchanged. Though we have over 9,000 listed companies, only about 2,000 are traded. And of these, only one-fourth have some significant investor interest. Most firms also have very limited floating stocks leading to ex-treme speculation and volatility.

However, for genuine companies, offshore listings continue to make sense given that they align with the company?s business strategy. Also, as the Indian market gains more depth, one might see companies tapping investors closer home. ?Qualified institutional buyers (QIBs) are getting more attractive by the day and companies that list abroad largely for funds may tap them,? says Hegde. At the same time, he points out that reforms will take their own time and perhaps one will not see these changes in one?s own lifetime. For now though, expect more and more Indian companies to be bitten by the foreign bug.