WHERE TO LIST - SELECTING AN EXCHANGE
One of the first decisions a company contemplating a listing must make is where to list. Today there are literally hundreds of possible choices. Reputable exchanges exist all over the world and many exchanges now offer two or more possible markets each targeting slightly different participants and investors. This range of choice exists precisely because what is right for one company may not be for another. Although decisions must be tailored to your circumstances, the factors to consider are fairly standard and include the following:
The typical size of offerings varies from exchange to exchange because of the size and level of liquidity in that market. These differences can be quite significant even within a single geographical region such as Europe. Whilst the average size IPO on Deutsche Bourse during the two most recent calendar years was EUR 709 million, the same figure for the same period on the Oslo Exchange was EUR 141 million and on other European exchanges the average figure was even smaller. While this means that companies wishing to raise large amounts may be restricted to certain markets, mining companies, which generally want to raise smaller amounts, have a wider range of choice.
Level of regulation
The level of regulation exerted by different exchanges and the markets within them varies considerably. This applies both during the listing process and following it through ongoing financial reporting and information disclosure requirements. In general stringent regulation will increase investor confidence and increase the potential market for a company’s shares. This, however, needs to be weighed against the compliance burden that will be placed on the company both during the listing process and following it.
Every stock exchange has its own regulations governing the listing process and how they determine whether or not a company can be admitted. Common requirements include stipulations concerning financial history, projected cash flows and/or working capital, minimum number of shareholders, minimum public float, minimum share price, market capitalisation and, for mining companies, geological reports produced under specified standards. While these regulations are generally similar from exchange to exchange, differences do exist. Some, for example, have special regulations applicable to mining companies such as alternative financial tests based on assets. A mining company, particularly one in the development or exploration phase, may find it impossible to meet the traditional tests. Selecting an exchange with requirements sympathetic to the sector may therefore make the difference between being able to list and being rejected. Other regulations may simply have cost implications. It is therefore sensible to compare the specific requirements of potential exchanges before selecting one.
Primary listing requirements
A minority of exchanges and certain national governments require companies to initially list on an exchange in their home jurisdiction before seeking a cross-border listing in another jurisdiction. Where this is applicable, companies will generally have two options. It may be possible to circumvent these restrictive requirements by incorporating a new holding company in a suitable jurisdiction to sit above existing structures. Alternatively, although this will undoubtedly increase costs, companies may proceed with a dual listing.
Cross-border transactions account for a large percentage of all listings and it is absolutely normal for a company registered or operating in one part of the world to be listed on an exchange in a completely different part. However, geography is a factor to consider. Both during the listing process and afterwards a considerable amount of management time will be spent dealing with investor relations and, to a lesser extent, relations with the exchange. Geographical proximity may play a part in ensuring that these relations remain strong.
Although market conditions on exchanges across the globe generally move in line with each other, this is not a universal rule. At times there will be demand for particular types of stock on one market while the same type stocks are out of fashion on another. These anomalies are more likely to appear at time of crisis, such as the present. When they do it will pay to be aware of what is happening locally across the globe and to take these local market conditions into account when assessing which market to assess.
Whilst cost should never be the main factor driving a decision about which exchange to choose, this will, inevitably be one of the factors to consider. The fee levels of professional advisors differ from location to location and this can have a significant impact on the overall cost of a listing and continued compliance following the listing. The extent and nature of the exchanges regulations will also be a factor in determining overall costs.
For various reasons individual exchanges have developed specialisms in particular industries or types of company. NASDAQ, for example, is well known as an exchange for high tech companies. As a result, both the investors and advisors associated with those exchanges will tend to have a deeper understanding of the industry or industries in which it specialises. Selecting an exchange where an appropriate industry cluster exits can therefore greatly increase the chances of a successful listing. Exchanges with a reputation for specialising in mining companies include the following:
London Stock Exchange Alternative Investment Market
The London Stock Exchange is one of the world’s largest and best known stock exchanges. It is a global mining hub with high liquidity and access to an international pool of investors. Some of world’s largest mining companies, including Glencore, BHP Billiton, Rio Tinto and Anglo American, call the LSE home. However, what is of more significance for most mining companies seeking an IPO, is that in addition to the main market, the LSE also operates a further market known as the Alternative Investment Market (AIM). While the main market is designated for large corporations, AIM is specifically designed to cater for small companies and growing companies. The entry criteria reflect this and there are generally no minimum requirements as to trading record, number of shareholders, public float and market capitalisation. Floats may be for a little as GBP 5 million but much larger amounts can be raised on the market. The co-existence of AIM and the Main Board allows for smooth transition to the larger market place when companies’ capital requirements grow further.
Toronto Stock Exchange
The Toronto Stock Exchange ranks amongst the ten largest stock exchanges in the world and has a global reputation in the mining sector. At the end of 2019 almost 50 percent of the world’s public mining companies were listed on either the Toronto Stock Exchange’s main market (TSX) or the Toronto Venture Exchange (TSXV) which plays a similar role to London’s AIM, catering for small and early stage companies. Because of its geographic location, the exchange has a particular attraction for companies from North and South America, it also plays host to companies from Australia, Africa and Europe. Special industry-based dispensations for mining companies make the exchange particularly attractive to early stage mining companies that might not be capable of satisfying more stringent financial tests. TSXV may be used as a stepping stone to TSX.
Hong Kong Stock Exchange
Like both Toronto and London, the Hong Kong Stock Exchange (HKSE) is one of the world’s ten largest stock exchanges. It has around a hundred listed mining companies, making it the leading exchange in Asia for this sector. The growing demand for natural resources emerging from China, Japan and other Asian countries may encourage mineral companies to list on HKSE for strategic purpose. However, at present the majority of companies already listed are controlled or partly owned by the Chinese government. The Main Board caters for companies meeting its stringent requirements, while the Growth Enterprise Market (GEM) is a more relaxed forum for smaller growth companies. GEM companies that grow can transition to the Main Board.
Australian Securities Exchange
Whilst not as large as the three previously mentioned exchanges, the Australian Securities Exchange (ASX) is a good platform for small and medium-sized mining companies even though it has only a single Board. Resource companies represent nearly half the companies listed on the exchange. Most of these are companies with projects in Australia, South East Asia or Africa. A significant factor influencing the decision of many mining companies that decide to list here is a dispensation that allows them to do so using an assets test rather than traditional financial measures. The ASX also has a reputation for efficient and cost-effective listings.
Johannesburg Stock Exchange
The Johannesburg Stock Exchange (JSE), although not one of the world’s biggest exchanges, is a market leader in Africa where it has access to the continent’s largest pool of investors. It is also a regional leader in the mining industry. The market is composed of two boards: the Main Board and the Alternative Exchange Board (AltX). The Main Board hosts companies from across the continent, while Altx tends to accommodate small and medium-sized local companies.
This piece has been prepared as a part of the series of three articles.
Moore ST Moscow
M +7 495 589 3498 (ext. 253)