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India plans IPO rule changes to lure homegrown startups: sources

[MUMBAI] India's market regulator is planning rule changes that will make it easier for homegrown startups to list their shares on local bourses, sources involved in the process said, helping domestic investors to bet on the country's booming online economy.

The Securities and Exchange Board of India (SEBI) is considering easing rules on mandatory disclosure for the draft prospectuses of Internet-based companies, the sources said.

One of the main items that could be scrapped is the need to detail the use of proceeds from the initial public offering of shares, they said. This is currently an obstacle for startups, as these companies don't typically use cash to build plants or purchase tangible assets. "A lot of them operate without any tangible assets," said one of the sources directly involved in the process.

"That creates an issue when declaring the use of proceeds (in the draft prospectus)." All the sources declined to be named, as they were not authorised to speak to the media given the rules are still being finalised. A spokesman for SEBI did not respond to Reuters calls and e-mail requesting comment.

Many Indian startups including online retailers Flipkart and Snapdeal are expected to be preparing for IPOs in the near future, hoping to raise capital and to give some of their early backers an opportunity to cash in on investments worth billions of dollars.

But bankers are expecting them to explore overseas markets, mainly US exchange operator NASDAQ OMX Group, given regulatory requirements in India and the difficulty in finding valuation benchmarks on exchanges on which no comparable rivals trade.

The rule changes, if implemented, may encourage some of these companies to consider a listing at home, giving Indian investors the chance to put money into a sector that is expected to boom in the next few years as more Indians shop, live and work online, investment bankers said.