Don’t believe the hype: dual listings are here to stay

When liquidity is being driven primarily from one exchange, investors can’t help but question whether the costs of a dual listing outweigh the advantages.

Let’s take a step back.

Dual listings refer to the process by which a company lists its shares on a second exchange while continuing to trade its stock on the market where it made its original IPO.

Many businesses list in countries that share a similar culture or common language. Examples include Carnival (UK / US), Investec (South Africa / UK), RELX Group (UK / Netherlands) and Rio Tinto (Australia / UK).

Supporters cite a myriad of advantages. Different markets attract different investor profiles giving access to a larger pool of potential investors, attracting more capital and liquidity which can often allow investors to take advantage of undervalued stock prices, permitting capital to flow more freely between markets.

For every Unilever there’s a RELEX (formerly Reed Elsevier) which has chosen the UK over the Netherlands and remains listed in both London and Amsterdam.

Here at Memery Crystal we remain emphatic in our support for dual listings and we are also seeing a lot of interest from ASX-listed mining companies looking to raise funds to develop African assets. The positive benefits it can bring to companies are simply too juicy to ignore.

Advantage #1: Access to capital

Let’s start with the attraction of London itself. Stephen Hammond, Wimbledon MP and Treasury Select Committee member, described the assets of our hometown nicely.  “(London is) a liberal, global city, with deep respect for the law, a helpful time zone for dealing internationally around the globe and with…the whole financial eco-system of corporate lawyers, accountants, consultants and investment bankers.”

London is home to many of the world’s largest funds, offering access to vast new pools of capital. In mining, for example, the top ten funds value £26bn and the top ten private equity funds are worth £7.2bn. By contrast, in Canada, where several of the world’s largest natural resource companies call home, the top ten funds value $3.9bn (public) and $2.5bn (private equity).

As well as major international funds, London offers access to unique sources of capital including UK-specific smaller company funds, special situation funds and private clients. It also provides excellent understanding of developing markets such as Africa. Canada, by contrast, is more focused on continental America, particularly for companies that operate in certain sectors, like natural resources, that benefit from the access to London’s capital markets.

Advantage #2: Lack of competition

Believe it or not, the LSE is often underserved in investment opportunities for certain industries (and this is particularly pertinent among some vehicles like UK Smaller Company funds).

As an example, let’s look at the natural resource sector:

• Of the 42 mining companies with market cap >$100m, only 11 are listed on the LSE.
• Of the 1,600 institutional investors in LSE listed mining companies, 1,000 are not currently invested in mining companies listed on the Toronto exchange.

When an abundance of capital supply collides with a scarcity of investable companies, the result is a significant opportunity.

This lack of competition has real benefits, not least the potential for better valuations. We’ve seen LSE-listed companies trade at a premium across a variety of market valuation analyses.

Advantage #3: Improved liquidity

It makes sense that a dual listing improves a company’s liquidity since the shares are being traded on more than one market. Listing on LSE, for example, might double or triple the number of interested investors.

The equity trading day extends to encompass the European time zone, as well as bringing emerging market and Asian investors into play.

There are some costs involved in dual listings, naturally. There is the price of the initial listing and ongoing listing expenses. Similarly, regulatory and accounting requirements may differ across jurisdictions which may necessitate local legal and finance expertise.

However, these are easily overstated and there is a large degree of fungibility between the markets. Also, money can be raised at a lower rate of commission in London than in, say, Canada, which offsets the cost of listing.