Dual-listing exercise creates value for firms

The exercise also elevates higher standards of corporate governance, and improves information environments and stock liquidity

by NUR HANANI AZMAN / pic by BLOOMBERG

ACQUIRING financial resources is the main driver for local public firms seeking dual listings on foreign capital markets, said Fortress Capital Asset Management (M) Sdn Bhd investment advisor and director Geoffrey Ng.

He added that dual-listing exercise also elevates higher standards of corporate governance, and improves information environments and stock liquidity.

“Other key factors include market leadership, brand and size of the market capitalisation upon listing,” he told The Malaysian Reserve (TMR).

Rubber glove manufacturer Top Glove Corp Bhd on Oct 13 announced its proposed dual primary listing in the Hong Kong Stock Exchange (HKEX).

The rubber glovemaker is considering raising more than US$1 billion (RM4.15 billion) from the listing and engaged with bankers on the plan.

The listing process is expected to take six to nine months according to its executive chairman and substantial shareholder Tan Sri Dr Lim Wee Chai.

Ng added that the current valuation for the glove sector is positive and it is an opportune time to seek a dual listing in Hong Kong, so that the domestic valuation-metrics could carry over into the HKEX listing.

He said a stock market like Hong Kong, which is one of Asia’s leading international equity markets, will allow companies like Top Glove to reach a wider audience of international investors who want investment exposure into the glove sector but may not have access to trade on Bursa Malaysia.

“This presents Top Glove and companies who dual-list some benefits, for example greater foreign institutional and retail following, improved brand recognition and market presence.

“It also will provide the ability for Malaysian-based shareholders to move portions of their shareholding to be traded on the HKEX (where applicable), increase trading liquidity of shares and improve price discovery (valuation) of shares,” he added.

Generally, Ng said stock prices are more informative after dual-listing as dual-listings allow for improved price discovery (valuation) of shares.

“This can both benefit or be disadvantageous at times, since the relative share price movements of the company on both exchanges will influence each other — resulting in episodes of possible mispricing if, for example, one of the markets experiences severe weakness in general,” he explained.

MIDF Amanah Investment Bank Bhd (MIDF Research) head of research Imran Yusof said companies which seek dual listing could get access to a larger pool of potential investors.

He said this improves its share liquidity and public profile as the shares are traded on more than one market.

“Dual listing also enables a company to diversify its capital-raising activities, rather than being reliant only on its domestic market.

“These could be some of the considerations that a company could weigh to decide on a dual listing,” he told TMR.

At the moment, MIDF Research does not see dual listing as a growing trend since the corporate exercise depends on the company’s own evaluation and plans.

He said some of the disadvantages of dual listing are cost due to the expenses involved in the initial listing and ongoing listing expenses.

“The differing regulatory and accounting standards between the two markets may also result in the need for additional legal and finance staff.

“A dual-listed company may place more demands on management as well, given the additional time required to communicate with investors in the secondary market,” he added.

In theory, a dual listing should facilitate better price discovery as it is available to a wider pool of investors.

“I would not say valuations are not good in Malaysia. It is all relative. It depends on an investor’s familiarity with the market and sector, appetite for risk, country profile and other considerations,” he said.

Areca Capital Sdn Bhd CEO Danny Wong Teck Meng said secondary listing or cross listing allows a company to access capital the home country market may not attract.

“It also helps to promote branding, profile and market presence elsewhere. However, cross listing doesn’t help in valuation. If any, it is more of one market could take a high-risk premium than the other,” he told TMR.

JF Apex Securities Bhd research analyst How Chi Hoong said Malaysian companies may be seeking dual listings mainly to put itself closer to the targeted market instead of fundraising.

He noted that the example listing of Pestech International Bhd’s subsidiary in Cambodia and Pentamaster International Ltd in Hong Kong.

Commenting whether more companies will mull over dual listings, he said there is no significant sign it will take off in the current economic situation.