Going Global: The benefits and challenges of dual listings

Public discussion around the merits of Australian Securities Exchange (ASX) companies being dual listed has intensified lately. The downturn in the global resources sector in particular has seen the media and the investment community publicly question the benefits of maintaining a dual listing given the significant associated costs and regulatory requirements.

Within the resources sector, multinationals such as BHP Billiton Limited and Rio Tinto Limited are regularly questioned as to the benefits of their dual listings, the relative liquidity for stock on each exchange and if the cost of maintaining the listings is strategically valuable given both companies are undertaking significant cost reduction programmes. The questions being asked of the large multinationals are equally applicable to all dual and multiple-listed companies; particularly the small-mid cap ASX listed players.

Given this debate, Citadel-MAGNUS has analysed current small-mid cap ASX listed entities that hold dual listings on either London’s Alternative Investment Market (AIM) or Toronto Stock Exchange (TSX) and Venture Exchange (TSXV), to address some of these questions.

Our analysis quantifies the number of dual ASX listed entities (small-mid cap), analyses whether a bias exists towards the primary or secondary listing, highlights the advantages and challenges of maintaining a dual listing and outlines some simple investor relations principles to ensure multiple markets are equally engaged.

How many dual listed entities (small-mid cap) are there?

Citadel-MAGNUS identified 44 dual or multiple-listed companies on the exchanges analysed, as outlined in Table 1 below. Twenty four of the companies identified are ASX-TSX or the TSXV and 20 companies are ASX-AIM listed. The significant majority of the companies identified (92%) are focused on the resources sector, classified as Materials or Energy companies.

Table 1. ASX dual listings split by sector*

Source: Bloomberg as at 12 June 2014

Source: Bloomberg as at 12 June 2014

*Table 1. TSX includes both TSX and TSXV exchanges

 

Why do resources companies prefer dual listings?

The resources sector is an industry in which companies explore, develop and operate projects across the globe requiring significant upfront and ongoing capital investment. Companies in this industry often maintain a primary listing on an exchange foreign to the country in which their core assets are located, which in some cases creates an investor ‘knowledge gap’ resulting in limited market appreciation of the company on its primary exchange.

Certain global exchanges are more conducive to particular commodities and asset locations based upon sharing similar social, economic and political environments or they have a natural proximity to asset locations or an established history of successful peer operations. These exchanges offer resources companies access to investors who are perceived to have a better appreciation for particular assets and therefore – at least in theory – prescribe greater value to the company on market.

As shown by Citadel-MAGNUS analysis, resources companies typically pursue secondary listings in greater numbers than companies focused on other sectors, in order to capitalise on greater investor relevance, improved valuations and to obtain access to ‘fresh pools’ of capital to fund their significant capital expenditure requirements.

Does a bias exist towards a particular listing?

Companies often state the main reasons for pursuing a dual listing are to enable access to ‘fresh pools’ of capital and to increase liquidity in publicly traded stock, which is generated from having greater access to investors from different global markets. Although in theory this makes sense, Citadel-MAGNUS analysis shows that for the dual listed companies assessed, on average there is a clear bias demonstrated with respect to volumes traded on one particular exchange.

For the dual ASX-TSX listed companies identified, the average liquidity breakdown for the 12 months to 31 May 2014 highlighted a 64% bias towards stock traded on the ASX compared to only 36% on the TSX.

 Table 2. ASX – TSX relative volumes

Source: Bloomberg as at 12 June 2014

For ASX-AIM listed entities a clear bias exists towards the AIM, with an average of 71% of a company’s stock traded on AIM compared to only 29% on the ASX, for the 12 months to 31 May 2014.

Table 3. ASX – AIM relative volumes

Table 3_ASX – AIM relative volumes

Source: Bloomberg as at 12 June 2014

Although Citadel-MAGNUS’ analysis in Table 2 and Table 3 is based on a limited sample period for the identified companies, it does illustrate investor preference to trade stock on one particular exchange. Accordingly, in circumstances where liquidity is driven primarily from one exchange it begs the question of what the advantages are of maintaining a dual listing, and whether they outweigh the challenges.

What are the advantages and challenges of being dual listed?

The reasons for pursuing or maintaining a dual listing vary from company to company and are generally dependent on a multitude of factors specific to each, however at a ‘high level’ the main advantages and disadvantages include:

Advantages

  • Access to a larger pool of potential investors (both retail and institutional)
  • Increased liquidity derived from operating in more than one market
  • Greater access to capital, particularly in larger markets such as Europe or North America
  • Ability to ‘tap in to’ different markets at different times, depending on macroeconomic conditions etc.
  • More relevant peer and/or comparative market
  • Increased opportunities for mergers and acquisitions
  • Higher public profile

 

Challenges

  • Initial listing costs associated with a second listing
  • Ongoing costs associated with a second listing
  • Increased liability given different regulatory requirements
  • Increased demands on management – time commitment for marketing etc.
  • Complications with different clearing systems, are shares fully fungible
  • Practicalities of cross-market releases (different time zones)
  • Requirement for additional advisers, overseas based directors

 

Each of the advantages and challenges need careful consideration before undertaking a secondary listing. The ongoing success of a secondary listing can be assisted through the implementation of a proactive investor relations program, which typically draws on the following investor relations principles.

Investor Relations Principles

Maintaining a dual listing can present unique challenges for companies as outlined above, particularly for small-mid cap companies who typically have more limited resources to draw upon. These challenges include: managing different regularity requirements, the practicalities of cross boarder releases and increasing demands on the Board and senior management’s time, which can result in one listing taking precedence over another.

Companies who successfully manage their dual listings strike an adequate balance between the requirements of their primary and secondary exchange, ensuring relevance is maintained with their investor base within the different markets. Citadel-MAGNUS has outlined below some simple investor relations principles to assist companies pursuing or maintaining dual listings manage these challenges.

  • Preparation is the key

Preparing a 12-18 month forward investor relations calendar is crucial for companies with a single listing and even more so for companies with dual listings. Adequate planning allows the company to ‘map out’ its agenda for the coming 12-18 months, maximising its market engagement most efficiently to ensure sufficient and consistent news flow and contact with current and potential investors in all markets. Further, it also allows for the identification of potential gaps or ‘quiet periods’ throughout the year which can be managed.

  • Utilising Multimedia – connecting the globe

Holding conference calls for material regulatory, operational and corporate developments allows parties to hear directly from management wherever they are in the world. Holding the call at a mutually convenient time for dual listings can assist with attendee uptake. In addition recording the call, video or webcast and uploading it to the company website, alongside the investor presentation, increases the relevance and reach.

  • Regular Roadshows – face to face contact can not be underestimated

Whether it is current investors, potential investors (institutional or retail) or buy and sell side analysts it is important the company is seen to be regularly engaging on a ‘face to face’ basis within the markets in which it operates. Regular roadshows provide the company an opportunity to introduce the Board and management team, promote the company strategy, address any issues highlighted along the way and importantly maintain relationships and relevance with its investor base.

  • Maintain a presence on the ground where possible

Companies maintaining dual listings often benefit from having a person on the ground within the different listing jurisdictions in order to address the day to day requirements of its investor base. This could potentially include a non-executive director and/or investor relations professional tasked with managing the relationship with investors operating within the local market. In addition, the local representative can provide specialised knowledge of the foreign market including valuable ‘on the ground’ intelligence and act as the local point of contact for the company, making investors feel more connected.

Overall, a dual listing can provide many advantages for a company that is willing to invest the required time and resources. However, the access to new investors and ‘fresh pools’ of capital must be weighed against having the time, personnel and funding in order to avoid the challenges and to ensure a secondary listing is successful long term.