Cross-border listings surge, particularly in Asia

A surge of companies leaving home to float on overseas stock exchanges is causing cross-border listings to grow faster than domestic ones, articularly in Asia.

Inside international IPOs.

By Elizabeth Fry

When Linc Energy boss Peter Bond delisted the oil and gas producer from the Australian Securities Exchange (ASX) last year to float Linc’s shares on the Singapore exchange, his decision was largely driven by the torrent of international money pouring into the Asian financial capital, which is also a major oil and gas trading hub.

Bond, one of Australia’s richest men – reportedly worth around A$450 million – thought he could achieve some important goals by shifting the Queensland-based oil, shale and coal company to Singapore.

First up, by securing a cornerstone investor he could lessen trading volatility.

“Singapore is a financial gateway. There are a lot of pure investors who understand the sector. Singapore’s ‘Switzerland in Asia’ effect is an added bonus,” he explains.

The local trading volatility in Linc was a particular problem for Bond since Linc has both conventional oil and gas production and unconventional energy assets such as shale and coal-based synthetic fuel operations.

As a major oil and gas trading centre, Singapore attracts investors who appreciate and understand the unconventional play. That makes them less likely to react negatively to news of short-term changes. Basically, Bond was bedding down some big initiatives and he wanted to get on with it without the market overreacting every day.

Linc, which has energy assets in the US, UK, South Africa, China, Vietnam and Uzbekistan, has since secured leading Malaysian conglomerate Genting Group as a major shareholder.

“Linc’s share price could rise by 30 per cent and drop back that much in a week on rumours of potential discovery,” says Bond.

“Longer-term investors, long-only super funds and hedge funds and private investors don’t want to be in such a volatile stock. They want incremental growth.”

Bond had two choices. He could either launch a pre-emptive strike and switch to a friendlier exchange and give the company and the share price some clear air. Or, he could just stay with the ASX and just push through. He opted for the former.

"If you believe you can get better value for shareholders elsewhere, you almost have an obligation to go somewhere else." – Peter Bond, Linc Energy 

“I didn’t want to set up all these milestones and still be tied to the same volatile trading regime,” says Bond. “We wanted to see more incremental and controlled pricing.”

For Bond, it was also about attracting a more sophisticated investor base.

“There are some advantages about being on the home exchange but it’s never perfect. You tend to find you get five or six benefits and one or two negatives.”

He acknowledges it’s a bet.

“At the end of the day, if you believe you have a longer-term future, you’re not particularly happy with the way things are working on the home exchange and you believe you can get better value for shareholders elsewhere, you almost have an obligation to go somewhere else. It is really tough to do, though. It takes a huge amount of work.” 

Peter Bond, Linc Energy

Bond admits there are benefits of being listed on one’s home exchange. And he admits that the jury is still out on the benefits of moving to Singapore.

“I still really do need to hit momentum points and milestones to drive the price, so in the next few months that momentum will show whether the strategic move to switch exchanges to Singapore was the right one.”

So are more companies looking at moving from their home exchange? Definitely yes, says Bond.

Frank Castiglia, a partner with law firm Baker & McKenzie, neatly captures the corporate view when he confirms that companies are increasingly looking for the exchange that best suits their needs. And they’re moving offshore for very different reasons than they did before.

“It is a horses for courses thing now,” Castiglia says.

“People are more astute and selective. They weigh up a number of factors when considering where to list. Where will they get the best value and liquidity? What are the advantages of being close to their customers? Is the exchange a place where investors appreciate, understand and value their sort of company?”

That’s why the ASX and its counterparts in London and Toronto are good destinations for resource companies, he notes. And why many tech and life sciences companies look at NASDAQ, where many of their peers are listed.

Says Bond: “If you’re in an oil and gas business, US or London are the two obvious places to be even if you have a home exchange somewhere else. We thought long and hard about London since investors there have a far stronger appetite for exotic investment.”

Another reason to go to London is the opportunity to attract high net-worth private wealth. There’s much less of it in the ASX, more in Singapore, notes Bond. He plans to look at dual listing, adding either London or US in 12 months or so.

A Hong Kong listing did not appeal to Bond since Linc doesn’t have enough going on in China.

“Hong Kong is the obvious answer for everything that’s mainly China-centric. Singapore is the alternative. It’s an up-and-coming hub for US and London companies that don’t like the Hong Kong exchange.”

In Bond’s view, Singapore has done a better job than the ASX at being a real regional hub. He says that most people don’t realise how much Chinese, Indonesian and US money ends up in Singapore, and that adds to his interest in being located there.

It used to be that cross-border listings – both dual and initial public offerings (IPOs) – were undertaken by companies in the developing world hoping to benefit from the greater liquidity and mature investor base found in London and New York. Now, as capital markets mature in many emerging markets, first-world companies are looking beyond the top financial centres in the hunt for a more knowledgeable pool of investors, higher stock prices or to be closer to new customers.

Cross-border IPOs grew three times faster than local IPOs last year, raising US$32.4 billion globally in 2013, according to Baker & McKenzie. That’s almost double the 2012 figure. Capital raised in cross-border IPOs makes up roughly 20 per cent of the global IPO market. These rates underline a strong revival in the IPO market as a whole after years in the doldrums.

Global volumes exceeded US$38 billion for the first quarter of 2014, more than twice as high as in the same period last year. Asia had the highest volume of cross-border IPOs in 2013, raising US$18.9 billion last year.

This year, Asian companies are also looking hard at US markets. The best example of this is Alibaba, the Chinese e-commerce giant, whose platforms handle 80 per cent of China’s e-commerce. It moves more merchandise than eBay and Amazon combined. 

"One's loyal to one's shareholders and where the growth is, not to any particular country." – Simon Loh 

The undoubted star of this year’s listing line-up, Alibaba is forsaking its Hong Kong home exchange for the US, where its listing has been heralded as the biggest IPO of all time. There have been “iconic” cross-border deals in recent years including Prada’s IPO in Hong Kong, Glencore’s dual listing in London and Hong Kong, and Manchester United’s New York IPO. But importantly, big names such as Formula One – which is looking for new races and new markets – and Manchester United came very close to listing in Singapore.

“The Singapore night race is a marquee event,” says Ashok Lalwani, a Baker & McKenzie securities partner based in Singapore. “While both companies ultimately listed in the US, they did a fair amount of work on a Singapore listing.”

The rush of big name companies, such as Prada, to debut on Asian exchanges is astonishing. Simon Loh Wee Hian, major shareholder and executive vice chairman of GHL Systems Berhad, says the trend shows it doesn’t matter where a company is listed.

“One’s loyal to one’s shareholders and where the growth is, not to any particular country. As long as I benefit my shareholders by exposing them to Asia, it is less important that GHL’s home market is Malaysia,” he says.

Simon Loh, GHL Systems Berhad

Following the acquisition of Australian-listed e-pay Asia Limited earlier this year, a full 99 per cent of predominantly Australian shareholders accepted the share offer and became shareholders in GHL, an electronic payment business spread across Malaysia, Indonesia, Thailand, Philippines and Australia.

“In this particular case, nearly all shareholders opted for shares in GHL because they clearly like the ASEAN growth story,” says Loh, who believes the high take-up of scrip reveals the cultural acceptance of Australia as part of Asia.

Nonetheless, the best example of a company seeking out a more hospitable market is the US listing of Alibaba.

Whatever way you look at it, Alibaba’s decision to join a pantheon of US-listed tech giants with household names – Amazon, Google, Twitter and Facebook – is a massive blow to the Hong Kong Stock Exchange.

Alibaba’s move underlines the trend of finding “the exchange that fits”. Its decision points to the resurgence of interest in the US by Asian companies now that the US is starting to thrive. Although investor interest in China’s tech companies runs strong, Alibaba is deserting Hong Kong – its first choice – because of the regulator.

Alibaba abandoned plans to list on the Hong Kong bourse after failing to convince regulators that its founding partners should be allowed to nominate a majority of directors. The regulator claimed that threatened the one-share-one-vote principle, since controlling the board is indirectly getting the same results as having a dual share-class structure.

Attempts to resolve this impasse failed, delivering a loss for Hong Kong and a win for the US, which allows a dual class structure giving founders special voting rights. News Corp, Ford Motors, The New York Times Company, Google and Facebook all have such structures.

For Hong Kong regulators to consider rule changes to accommodate Alibaba would not have been right, says Pauline Dan, head of Greater China equities at Hong Kong-based Pictet Asset Management.

“Over the years, Hong Kong has moved towards equal share, equal rights. Regulators are safeguarding that structure and have not backtracked just to accommodate one particular company,” observes Dan. As she sees it, if Alibaba’s rival, the Chinese internet company Tencent (WeChat messenger), doesn’t have a special structure and has been successful in Hong Kong, there’s no reason for Hong Kong to change the rules.

While Hong Kong, London and New York remain today’s global financial centres, will they fade in the face of increasing competition from hubs such as Singapore?

Asia’s high cross-border IPO numbers are partly due to Beijing’s 13-month freeze on new listings in mainland China. Concerns over the massive speculation on new listings prompted Beijing to temporarily stop listing approvals. Consequently, many Chinese companies listed in Hong Kong.

But according to Dan, the Asia-Pacific region will remain white hot, particularly as China opens its exchanges to foreign listings and as Asian exchanges become more liquid. Says Baker & McKenzie’s Lalwani:

“We’re seeing more Japanese coming to Hong Kong and more movement into Singapore, albeit mostly for REITs (real estate investment trusts) and business trust listings.” He says the Japanese companies listed on the Hong Kong Stock Exchange have achieved significant increases in stock price. “These increases signal to the market that there are true financial advantages to listing abroad."

Moves are afoot to improve cross-border listings in the region, with some regional exchanges trying to make dual listing easier for companies, Castiglia notes. However, few exchanges offer a fast-track system such as the one set up by London’s AIM, owned and operated by the London Stock Exchange. Companies listed on major exchanges don’t need to prepare a full prospectus for a dual listing on AIM.

Says Castiglia: “If we truly want to increase the volume of dual listings or cross-border listings, we should follow suit and simplify some of the regulatory requirements on the basis that listed companies have a good track record of compliance. Had the ASX merged with Singapore, a similar regime could easily have been set up. People have talked about doing this, but we haven’t seen much progress.”

ASEAN exchanges now are looking at harmonising regulatory requirements to simplify secondary listing for blue chip companies within the region. Some of the ASEAN exchanges will become more attractive, both inside and outside the region, if as a bloc they can ensure the markets within are robust, liquid and easy places to raise capital.

Other exchanges have been established, such as the Growth Enterprise Market (GEM) set up by the Hong Kong Stock Exchange for smaller growth companies that do not fulfil big board profitability requirements.

Australia has the Asia Pacific Stock Exchange (APX) which seeks to attract Chinese money. Indeed, a series of Chinese government investment incentives was offered to smaller businesses on the basis that they would look for a listing elsewhere once they developed.

The APX is specialising in Asian companies and aims to make it easier to list within a regulatory environment designed specifically for them.

Says APX’s chief operating officer David Lawrence: “We facilitate the listing process for clients and help with the secondary market. We’re cheaper and more flexible and looking at frameworks specific to sectors that have a natural nexus between Australia and China, such as property and agribusiness.”

Such initiatives are very good for companies like Loh’s with a lot of cross-border activity. And the pace of change looks set to accelerate, Loh predicts, if US companies see their valuations are as robust in Asia as they are at home and the aftermarket shows strong liquidity.

October 2021
October 2021

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