Hyundai’s Record-Breaking IPO and Its Implications Hyundai Motor India raised $3.3 billion through its recent initial public offering (IPO), marking the largest-ever in India’s history. The South Korean automaker’s decision to offer 17.5% of its Indian unit reflects a trend among global corporations aiming to capitalize on India’s lucrative market. Unlike past IPOs, which were forced under regulatory pressures, Hyundai’s move was motivated purely by financial strategy and India’s strong valuations. For instance, Maruti Suzuki’s Indian arm has a market cap of $45 billion, compared to its parent’s $20 billion valuation in Tokyo.
This IPO underscores the shifting dynamics where foreign firms are increasingly turning to India’s capital markets voluntarily, setting a potential precedent for others to follow.
Comparisons with the 1970s IPO Wave Hyundai’s IPO recalls Colgate-Palmolive’s listing nearly five decades ago, which was part of India’s first wave of foreign multinational listings. Back in the 1970s, India’s foreign-exchange reserves were precariously low, leading the government to coerce global firms into diluting their stakes in Indian subsidiaries. Firms like Colgate, Hindustan Unilever (formerly Lever Brothers), and Cadbury stayed, selling shares to Indian investors and helping expand the stock market to a broader middle class. Others, such as Coca-Cola and IBM, exited due to strict regulations.
While Colgate’s IPO and others were spurred by foreign exchange regulations, Hyundai’s listing is voluntary and reflective of India’s strong market conditions today. India’s foreign-exchange reserves currently stand at nearly $700 billion, providing a cushion that was absent during the oil shock of 1973. Hyundai’s move, therefore, signals a new phase of India’s equity culture, built on market potential rather than necessity.
LG Electronics, Whirlpool, and Coca-Cola Follow the Trend Other global corporations are eyeing the Indian IPO market. LG Electronics, for instance, is rumored to be preparing for an IPO of its Indian unit, while Whirlpool has already listed 24% of its Indian subsidiary. Coca-Cola is also reportedly considering a public offering for its local bottling arm. These moves indicate a broader trend where multinational firms, particularly those with long-standing operations in India, are taking advantage of India’s buoyant stock market and high valuations.
Whirlpool’s CEO Marc Bitzer, for instance, explained the logic behind such listings, noting that the high trading multiples of Indian units, compared to their lower parent valuations, present an opportunity for asset arbitrage. This growing trend not only reflects the potential of India’s consumer market but also provides multinationals with an opportunity to raise capital and “Indianize” their businesses to comply with local policies.
A Boost to India’s Stock Market Quality Hyundai’s listing and similar upcoming IPOs from foreign corporations are expected to improve the quality of the Indian stock market, which has been dominated by family-owned firms. Although family-run businesses contribute to 75% of India’s GDP, they have a mixed track record in shareholder value creation. Multinational corporations, on the other hand, have historically been more conservative with their investments and more generous with dividends. For example, Hindustan Unilever distributed 96% of its annual profit as dividends, while ITC, a former subsidiary of Imperial Tobacco Co., distributed 84%.
By introducing a greater number of high-quality multinational stocks, Hyundai’s IPO can help counterbalance weaker, less transparent firms that may list in an overheated market. This development is particularly important as India faces pressure from foreign investors who have grown concerned about the sustainability of lofty valuations amidst weakening earnings growth.
Multinationals’ Strategic Moves Could Rejuvenate the Market In the 1970s, Colgate, Unilever, and other global companies helped lay the groundwork for India’s burgeoning equity culture. Hyundai’s IPO, and the anticipated listings of other global corporations, could have a similar long-term impact. This trend represents a strategic re-engagement of multinational firms with the Indian market and suggests that Indian indexes could become more diverse, featuring a healthier balance of both multinational and family-owned businesses.
Hyundai’s IPO could mark a seminal moment, akin to the IPO wave in the late 1970s, ushering in a new chapter of growth for India’s capital markets.