Should you List on a Foreign Exchange?
March 1 1992 by Mary Jo Diekhaus
Democratization has been the volcano of current world affairs, changing the map of the world overnight. Next door to the erupting national governments are established financial markets poised on the verge of sweeping changes. Just as they are striving to keep up with both shifting capital resources and the EC unification timetable, new market economies are being born, adding to the pie. Though it comes as no surprise that our markets in
Our economy, too, has shrunk as a percentage of the gross world product, to a level of about 33 percent. The forecasters tell us that European economies will soon outperform our economy at home. The greatest growth in pension fund commitments to global equity markets, analysts say, will come not from the
IMPROVING YOUR BUSINESS PROFILE
A high profile on a foreign market makes it easier to establish relationships in the business community and to find opportunities for alliances, acquisitions, or other cooperative business ventures. A recent example is a French oil company, Elf
Visibility is one of the greatest advantages of listing. A listed security receives more local publicity and has daily stock prices quoted in the local papers. In most countries, the press is far more likely to cover a listed security because a local price is available and information is accessible through the local exchange.
Although it is difficult to quantify how much this exposure adds to the direct purchase of securities on the home market, the attention of the local press is a powerful source of continuing public exposure that can both support business and marketing efforts, and keep potential and existing shareholders informed. German companies, Volkswagen and Bayer, recently listed in
EASIER ACCESS TO CAPITAL
As a result of such visibility, a listing can enhance your company’s reputation. By providing more information to a capital market, your company becomes more credible, and reciprocally, the continuous flow of information allows the capital market to make faster, more responsible decisions. Over the years, studies have shown that the increased visibility from a listing can reduce the cost of capital by a few basis points.
Waste Management is in the process of spinning off its European operations and is listing in
Today it is commonplace for corporate issues to have an international tranche. Of the IPOs launched this year, even several relatively small offerings included a portion of shares placed in a foreign market. Once a CEO decides it is appropriate to raise capital outside the home market, the level of access to these markets becomes extremely important. Since the Crash of 1987 in particular, when investors realized there was potential risk in any market, they find it reassuring to have the local market commitment and access to information.
EXPANDING YOUR SHAREHOLDER RAISE
Conversely, it’s reassuring for CEOs to have a broader base of investors. A diversified shareholder base can increase the liquidity in your shares. Several years ago, BHP listed in
Granted, the major European institutional players have bought and will continue to buy foreign securities on the home market with few obstacles. While the British historically have had large percentages of their equity portfolios in foreign securities, the Continental Europeans still have lots of room to expand their international equity allocations.
LISTING AS A MARKETING TOOL
Considering the likelihood that your investors on any soil may also be your customers, and vice versa, listing becomes a good marketing tool. At one time or another, most private investors have considered an investment based on a quality product they have owned or heard about. This works internationally too. Certainly Sony is a good example of this. There was also the case of Laura Ashley five or six years ago when it went public on the London market: A number of Americans made valiant efforts to purchase shares and were disappointed to find how difficult, if not impossible, it was to participate in a security not available in the U.S.
SUPPORTING YOUR INTERNATIONAL RECRUITMENT
If you currently have or are planning overseas operations, a listing signifies a long-term commitment to a market, which in turn attracts top echelon managers and quality employees. It also provides a local market for direct employee ownership and a basis for employee stock ownership plans. IBM chose its recent listing in
WEIGHING THE COSTS
Choosing not to list often comes down to a question of cost, weighing both the time and costs related to an initial listing and the maintenance of that listing. It’s useful to look at
Currently, much of both the time and cost of listing is based on the cost of document translation, which in the past has been prohibitive. Fortunately,
Just how widely do listing fees vary? Worldwide, there is Tokyo at one extreme, costing a few hundred thousand dollars annually, or much more than the average price of a house in the U.S., and a European exchange such as Amsterdam, where the annual fee is about $1,200, or considerably less than the cost of a business class ticket to Europe.
It’s fair to assume that the cost of foreign exchange filings will come down in the not-too-distant future and that once the bulk of translation costs are eliminated, exchanges will need to either reduce their listing fees or provide added value in the form of additional services for that fee. For European listings, that day is not far away.
With the internationalization of securities markets over the past few years, there are several technical reasons why listing on a foreign exchange may benefit your company. The securities regulatory agencies of several countries are currently working together to protect the interests of all shareholders. The SEC and their counterparts tend to feel more comfortable about a company’s securities when they know a local authority is monitoring the trading and shareholder practices.
This is particularly true in the area of insider trading, where an EC directive requires minimum standards in each country against the abuse of inside information. The markets are also cooperating with each other by sharing information dealing with insider trading. Some time ago, Swiss banking secrecy law was lifted in connection with insider dealing violations in the
CROSS-BORDER TRADING IN YOUR SECURITIES
In the past, trading volume has seldom proved to be a justification for listing. For most
One of the major concerns for CEOs considering a listing abroad has been the clearing and settlement systems of foreign markets. With fixed settlement dates becoming commonplace,
An important part of the plans for unification, however, is to link the clearing and settlement systems of each EC exchange to other home market systems before the end of the decade. A centralized clearing and settlement system means a more efficient trading system, which not only eliminates the risks involved in settlement of domestic and foreign securities, but also reduces overall trading costs per share.
WHEN NOT TO LIST
Several months ago, a small
For small or mid-sized companies with no business outlets or other interests on foreign soil that are simply looking to raise capital, it’s likely that a foreign listing is not the answer. There have been exceptions, of course. There was a period not long ago when foreign investors were buying up
ENHANCING YOUR GLOBAL IMAGE
The number of CEOs who have chosen a listing abroad over the past decade and the past year is impressive. At the end of 1990, there were close to 2,000 foreign listings on the 12 EC country stock exchanges. While part of that number consists of corporations that have multiple listings, it remains substantial. Most of these companies are represented on the International Stock Exchange in
Among the EC stock exchanges, the number of foreign listings increased substantially between 1989 and 1990, with 40 companies listing in that year alone.
From a business development or capital standpoint,
Americans have strongly encouraged foreign enterprises to comply with
Mary Jo Dieckhaus is president of DD&W, a New York City-based investor relations firm, and U.S. Representative for the Amsterdam Stock Exchange.