Dual Listing

In order to increase overseas investor exposure in an expanding global financial market, often firms that are listed in their local markets also pursue a dual listing in the overseas market. This new listing may introduce an investor base to the firm which is significantly higher and therefore more familiar with the business segment of the company than its domestic market.

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What is Dual Listing?

Dual listing means listing of a company’s share on more than one exchange. In simple terms, it is a process in which a company can list its security on the stock exchanges of two or more different countries. These stocks can be traded on all of the stock exchanges on which they are listed. The share price of the stock should be exactly the same in all the exchanges after accounting for exchange rates. It is also known as “Cross Listing” or “Inter Listing”. The main purpose of dual listing is to add liquidity to the shares and also allowing investors greater choice as to where they want to invest.

How Does Dual Listing Work?

Companies tend to list their stocks in countries that have a similar culture or share a common language with their native jurisdiction. Most of the biggest Canadian companies are also listed on the US exchange. A company may seek ordinary listening even in prestigious exchanges like NYSE or NASDAQ. Along with meeting the exchange’s listing criteria, the companies also have to satisfy US regulatory requirements, restate their financials, and arrange for settlements and clearing. The most popular form of Dual listing of non-US companies is ADR. ADRs are placeholders of actual shares held in trust by a custodian bank in the company’s home country. The price of the stock price has to be approximately the same so as to prevent arbitrage opportunities.

Examples

Some major dual listing companies are:

• BHP (Australia / UK): 2001- BHP Group Ltd (ASX), BHP Group plc (LSE)

• Carnival Corporation & plc (Panama /UK): 2003- Carnival Corporation (NYSE), Carnival plc (LSE)

• Investec (South Africa/ UK): 2002- Investec plc (LSE), Investec Limited JSE)

• Ninety-One (South Africa / UK): 2020- Ninety-One plc (LSE), Ninety-One Limited (JSE)

• Rio Tinto Group (Australia / UK): 1995- Rio Tinto Ltd (ASX), Rio Tinto plc (LSE)

• Unilever (UK / Netherlands): 1930- Unilever plc (LSE), Unilever N.V (Euronext Amsterdam)

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Risks & Benefits:

The factors for a dual listing differ from company to company and typically rely on several reasons, but the key risks and benefits involve:

Risks:

1. Returns commove with international markets.
2. Probability of negative stock returns increases.
3. Currency risk arises because of changes in currencies of two countries.
4. The exploitation of prices because of arbitrage situations.

Benefits:

1. Diversification of capital raising activities.
2. Greater access to a larger pool of potential investors.
3. Higher Opportunities for acquisitions and mergers.
4. Improves the public profile of a company.
5. Increases liquidity of the shares.
6. Allows investing in different markets at different times.

Before making a dual listing, every benefit and risk needs to be examined closely. This would provide numerous advantages for a company seeking to invest the time and resources necessary. That being said, in order to prevent the challenges and ensuring that dual listing is effective for the long term, exposure to new investors and ‘fresh pools’ of equity must be balanced against resources and funding.

 

Author: Urvi Surti

About the Author:

Urvi is a commerce graduate and has a keen interest in Finance. She has completed her Chartered Wealth Management (CWM) from the American Academy of Financial Management and is currently pursuing a career in Financial Risk Management (FRM).

 

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