Christmas cheer came early for some of the counters such as China XLX, China Milk, Midas etc. China XLX rose 77% from $0.510 to $0.905 and closed the session at $0.77 on 8 Dec 09. For China XLX, Santa Claus came in the form of a dual listing. The bullish fervor also spilled over to other counters such as Li Heng, Midas, Oceanus, etc.

What is a dual listing? What are the advantages of it? Surely, if this is a panacea to declining share prices, hundreds of companies will be jumping onto the bandwagon. In this article, I will explore the intricacies of dual listing, types of dual listing and examples of companies which are carrying out such activities.

Dual listing refers to the listing of the company’s shares on two exchanges in different legal jurisdictions. It can be differentiated into primary and secondary listing with the former being subject to the full listing requirements of that exchange (secondary listing is one which does not satisfy full listing requirements).

Advantages of dual listing include the following:

Enlarges the size and diversity of the shareholder base. For e.g., Singapore is more of a retail market whereas Hong Kong has more institutional players;
Provides ready access to capital via two different equity markets;
Increases liquidity of the company stock by listing in a market where investors are familiar with the sector that the company is in;
Increase public profile of the company which increases the ease in targeting suppliers, customers and investors, who may take assurance from the knowledge that the company that they are dealing with, is a listed company on their stock exchange.
Disadvantages of dual listing include the following:

Involves numerous legal costs and the potential opportunity costs as top management attention is diverted from their core businesses during the lengthy preparatory work for dual listing;
Experiences high compliance costs by continuously ensuring that company meets the requirements from both exchanges and price sensitive information has to be distributed simultaneously among both exchanges.
For companies which want to attract foreign investors in overseas markets such as NASDAQ, besides dual listing, establishment of an American Depository Receipt1 (ADR) facility in U.S. may be another option. ADRs allow U.S. investors to own shares in foreign companies without having to undertake cross-border transactions. ADRs carry prices in U.S. dollars, pay dividends in U.S. dollars and can be transacted just like any U.S. listed shares.

Each ADR is issued by a U.S. depositary bank and can represent a fraction of a share, a share, or multiple shares of the foreign stock. Although the owner of an ADR has the right to “convert” to the foreign stock it represents, most investors would just own the ADRs. The price of the ADR often tracks the price of the foreign stock in its home and adjusted for the ratio of ADRs to foreign company shares.

Below is a table which lists some of the companies planning for dual listings / establishing depositary receipts facilities

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Table 1: List of companies which are either planning dual listing or establishing depository receipts



Source: SGX filings



Much has been discussed on China XLX by the financial press. I will draw readers’ attention to the other seven companies in the above table.

China Taisan

China Taisan is one of the few approved suppliers of fabrics used in the production of apparel for reputable international and local sports and leisure apparel brands such as Xtep (特步), Nike, Puma, Anta (安踏), etc.

It is in the process of establishing an ADR facility and is expected to embark on road shows in the United States. It has appointed BNY Mellon as the Company’s ADR Depositary Bank.

Li Heng

Li Heng is principally engaged in the manufacture and sale of high-end nylon yarn products. Its products are sold under its brand names, “力源” (Liyuan) and “力恒” (Liheng).

On 30 Sep 09, Li Heng proposed an innovative way for investors to gain exposure to HK market. Li Heng’s operations will be transferred to a new company (Newco) which will be submitting an application to the Hong Kong Stock Exchange (HKSE) for a listing of its shares (Newco Shares) on the Main Board of the HKSE by way of an introduction. Shareholders of Li Heng will automatically receive shares of the New Company which will be traded on the HKSE. SGX rejected this application as this corporate restructuring violates the listing requirements of the SGX. Li Heng is still contemplating on other possible avenues to enhance shareholder value.

Map Technology Holdings (MAP)

MAP is an integrated data storage service provider with three broad business divisions, viz. manufacture and sale of precision stamping products; provision of Electronics Manufacturing Services solutions and manufacture and sale of die-cut components.

MAP announced on 7 Dec 09 that it had appointed PSC as the issue manager, to provide advice on the Taiwan Depository Receipts (TDR), handle related pre-issuance matters, and act as underwriter to the Proposed Listing. Between MAP and the rest of depository receipts aspirants, MAP is the newest kid on the block.

Midas

Midas is a leading manufacturer of aluminium alloy extrusion products, primarily for the rail transportation sector in the PRC. On 22 Sep 09, Midas announced that it is planning for a secondary listing of its shares on the HKSE. It has appointed Credit Suisse in evaluating and preparing for the dual listing.

Oceanus Group (Oceanus)

Oceanus is an integrated value chain player in the abalone industry. According to the company, it is the largest land-based abalone producer in the world. As of 30 Sep 09, it has 24,720 abalone breeding tanks and an abalone population of 176.9 million (excluding 59.5 million uncaged one-year-old abalones).

It announced its TDR intention on 27 Oct 09 and till date; it has received all the approval from the relevant authorities. Oceanus is the first non Taiwanese owned company to successfully obtain approval from all the relevant authorities for the offering and listing of its TDR.

Sinotel

Sinotel has three main businesses, mainly, provision of wireless network communications; network support solutions and emergency mobile communication systems. Sinotel has obtained all the relevant approvals for its ADR facility and it has done a maiden transaction which marks the successful quoting of its ADR in U.S. It is pending the announcement of a market maker. Once the market maker is selected, Sinotel’s ADR can start trading over-the-counter market in U.S.

Z-Obee

Z-Obee is a full-set solutions house that provides complete design services spanning the entire handset design cycle, which involves services such as industrial design, software design, hardware design, procurement of hardware, prototype testing, etc.

Z-Obee announced on 28 Sep 09 that it has submitted application to HKSE. It is also simultaneously seeking shareholder approval on dual listing in HK via the special general meeting to be held on 30 Dec 09.

Conclusion – What is next?

From the above abridged introduction, it is apparent that the companies are in varying stages of their proposed dual listing / establishment of Depositary Receipt facilities. It is likely that out of the seven companies described above, Sinotel and Oceanus should be among the first to benefit from its ADR and TDR facilities respectively.

Not all dual listings are equal. However, it is likely that there will be punting opportunities for the nimble foot traders. Caveat emptor!