Secondary and Dual Listings − demystifying the jargon

While business confidence is still a little shaky, positive economic signs are assisting a revival of our primary capital markets, and with big names such as Myer and Heritage hitting the boards, listings are back on the agenda. On the equity front, there has also been plenty of foreign investor interest in Australian companies and lots of angling about how to get hold of those foreign dollars. With that in mind, it is worthwhile considering the different ways in which companies (both currently listed and unlisted) can utilise hybrid listing structures to maximise value and increase their exposure to a larger pool of investors.

While the terms ‘dual listing’ and ‘secondary listing’ are often used interchangeably, they are in fact two distinct concepts as explained below.

A secondary listing (also termed a ‘cross listing’) occurs where one company’s shares are listed on more than one stock exchange. The company generally starts with an initial or ‘primary’ listing on one exchange, and then moves to list in another or multiple jurisdictions.

Listing in another jurisdiction allows the company to access capital that it would not readily have access to within its primary listing jurisdiction. Another advantage from the company’s perspective is an increased profile and global presence, which can be valuable when expanding brands or operations into other markets or overseas. From a shareholder’s perspective a secondary listing may offer diversification of their investment, increased liquidity of their shares, and potentially lower investment risk as the shares are exposed to two or more markets rather than one.

A dual listing on the other hand is similar to a merger, however it allows each listed company to preserve its identity and may deliver potential savings on the regulatory costs associated with undertaking a full-scale merger. A dual listing occurs when two or more companies (each listed on a separate stock exchange) agree to combine their operations and cash flows but retain separate share registries and identities. This is facilitated by maintaining the ownership structures of two separate holding companies. The shares of each entity are not convertible into the other, but the shareholders benefit from the combined profits of the companies.

Typically, the board and management of each entity will be the same. While the dual listed structure is sometimes criticised for being complicated, it can also deliver better access to capital through exposure to two different markets and may overcome some of the hurdles associated with cross-border mergers. The dual listing structure can also offer tax advantages to both companies and shareholders which are discussed further below.

Successful examples of companies with dual listings include BHP Billiton (BHP Billiton Limited in Australia and BHP Billiton Plc UK), Investec (Investec Limited in South Africa and Investec Plc in UK), and Unilever (Unilever Plc in the UK and Unilever NV Netherlands). Interestingly, BHP Billiton Plc also has secondary listings on the Johannesburg Stock Exchange and an American Depository Receipts listing on the New York Stock Exchange.