Assessing the allure of a dual listing

If it goes well, heavier trading volume, higher valuation are possible

By Goh Eng Yeow
22 March 2010

Listing on multiple stock exchanges used to be a rare status pursued only by multinational companies whose operations spanned the globe.

Lending giant HSBC Holdings, for instance, is listed in London where it is headquartered, as well as in Hong Kong, New York, Paris and Bermuda. It is also planning to be listed in Shanghai.

With a market value of &pound118.65 billion (S$249 billion), it is worth more than the other three major British banks – Royal Bank of Scotland, Lloyds HBOS and Barclays – put together.

For advocates of multiple listings, HSBC’s high valuation, as compared with its British peers, is compelling evidence.

A company listed on more than one stock exchange can attract a far bigger pool of investors.

Any discrepancy in its valuation will narrow, as traders exploit the difference by selling shares on the bourse where they are valued more highly, and covering back with purchases on the bourse where the shares are priced lower.

Lately, it has become fashionable for companies big and small to seek multiple listings – and here, the hot trend has been to look to the Hong Kong bourse.

However, detractors argue that this may be a ploy to get a short-term boost in share price.

Despite enjoying an initial spike in share price when the company makes its debut in Hong Kong, the jury is still out on whether a typical dual lister will derive any long-lasting benefits.

In any case, there is no guarantee that a company can a secure a dual listing in Hong Kong, given the host of requirements imposed by Hong Kong regulators.

Thus the exuberant manner in which traders push up the price of a counter with dual listing plans may prove to be premature. Investors would be well advised to act more prudently, as failure by a company to pull off its dual listing plans will result in a big plunge in share price.

All that aside, are there at least some merits for a company that decides to obtain a dual listing?

Lawyer Robson Lee of Shook Lin & Bok noted that furniture maker Man Wah delisted from the Singapore Exchange (SGX) six months ago with a price-to-earnings (PE) ratio of only four. This ratio is a widely used measure of share price – the higher the ratio, the pricier the stock.

Man Wah is now geared up for a new listing in Hong Kong with a much higher projected PE valuation of 17 to 24.

This raises the question of whether investors in Singapore would have been better served had Man Wah sought a dual listing, rather than bowing out of the SGX altogether.

Some dealers believe that for S-chips – China plays listed here – the dual listing route helps to clear the pall bedevilling the sector, following a string of accounting scandals last year which involved high-profile companies such as Fibrechem and Sino-Environment.

To raise more capital to expand its business and improve the liquidity of its shares in Hong Kong, a firm will usually issue new shares to accompany its listing there. In order to do so, it has to issue a prospectus – a legal document which requires a small army of accountants and lawyers to comb through its operations in a process known as ‘due diligence’.

It is a painful experience which most company bosses can do without: coping with a horde of strangers sitting in their offices and asking pesky questions while they try to turn a profit on their business.

But if all goes well, the company gets considerable kudos with a clean bill of health when the professionals sign off the prospectus.

This, in turn, offers an assurance to new investors, and existing shareholders, that their money is in safe hands.

With primary listings on two bourses, the company will be subject to the rules and regulations of two jurisdictions.

It is an issue not to be taken lightly by any company which plans to go the dual listing route – especially if it has something to hide.

When handset designer Z-Obee launched its dual listing in Hong Kong last month, the section of its prospectus highlighting differences in listing rules between the SGX and the Hong Kong Exchange ran to 45 pages.

Navigating through so many regulations can be a nightmare for a firm if its staff are ill-equipped to handle the various compliance issues which may arise.

Still, S-chips may find the pain worthwhile if they can attract a higher valuation and a heavier trading volume.

Take Z-Obee. Since it announced that it was going for a Hong Kong dual listing in September, its share price had jumped from 13.5 cents to as high as 39.5 cents in January. The liquidity of its shares has improved too. Last year, trading of its shares languished at about 1.8 million shares a day.

Since it successfully completed its dual listing three weeks ago, about 26 million shares are traded daily on the SGX while another 17 million shares change hands daily in Hong Kong.

There is also almost no difference between its share price in Singapore and Hong Kong.

It is a good example of the way that dual listings can turn out to be a win-win situation for investors here.

What it also proves is that investors are still keen on S-chips here. They simply need assurance that a given counter is all right, and get on the bandwagon again – even if that assurance takes the form of a dual listing somewhere else.

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