In January, Rusal, the world’s largest aluminum company, became the first Russia-based company to list on the Hong Kong Stock Exchange. Three months later, beauty products maker L’Occitane became the first French company to list in Hong Kong. And in May, Avangard, Ukraine’s largest egg producer, raised $187.5 million through an IPO on the London Stock Exchange.
In the past 10 years, more and more multinational companies have been listing on foreign stock exchanges to expand into other markets, bolster their international reputation, tap new investors and take advantage of higher valuations and liquidity. Much of the rise is the result of technological advances that give investors access to real-time trading data on stock markets across the globe.
“The world is shrinking as investors have become increasingly comfortable investing on exchanges outside of their traditional coverage,” says Edward Bibko, the head of Baker & McKenzie’s Capital Markets group in London. “Money is moving more freely around the world.”
Despite the volatility of the financial markets since the global financial crisis, companies have more choices than ever when deciding where to list to raise capital. Making that decision requires weighing a variety of factors, including regulatory requirements, speed of listing, investor base, valuations and cost.
“The first question is where to list because the market is now so global,” says Elsa Chan, head of Baker & McKenzie’s Securities Practice in Hong Kong. “Companies need to be aware of the requirements in the different markets, including the cost and time involved in listing and post-listing compliance.”
Following the collapse of the US and European markets, many companies have begun turning to Asia. In 2009, more money was raised through IPOs on the Hong Kong stock exchange than on any exchange in the world, edging out the traditional giants: New York and London.
One reason for the shift is that the Chinese economy has been relatively unaffected by the financial crisis, continuing the investment flow into the Hong Kong Stock Exchange, long considered the gateway to Chinese investors. Companies like L’Occitane have sought out listings there as part of their expansion plans into Asia.
“With the rise of China, more and more companies are interested in the Asian exchanges because they either have a client base there or they’re trying to establish a brand,” Chan says.
Another reason for the shift is that European regulators have become stricter in enforcing eligibility requirements following the collapse of Lehman Brothers. Last year, for example, Baker & McKenzie overcame significant hurdles to complete the first cross-border IPO of a Russian company since the beginning of the financial crisis.
The issuer, which operates oil and gas assets in Russia, had planned to use funding from the IPO to buy out a joint venture partner. But the UK Listing Authority took the view that the company could not complete its listing until the buyout was completed in order to satisfy the listing requirement that the issuer control the majority of its assets. The Baker & McKenzie team was able to solve this catch-22 situation and list the company on the Main Market of the London Stock Exchange.
“People in the market were monitoring transactions in the pipeline, including ours, nervous that failures would set back the recovery of the Russian IPO market,” says Bibko, who led the transactions team. “Fortunately we were successful and the Russian market has continued to become more active.”
In the last three years, Baker & McKenzie’s securities practice has advised clients on more than 250 equity and debt offerings, including four of the largest IPOs in Hong Kong in 2008 and 2009 and the second-largest Egyptian IPO in the Cairo stock exchange’s history.
With offices in all the major financial markets, plus emerging markets like Russia, China and Brazil, the firm is particularly well positioned to help clients navigate cross-border listings and provide related advice, including on tax issues that could diminish a company’s returns.
To help clients determine the best exchange for their purposes, Baker & McKenzie is conducting cross-border listing seminars and has developed a
cross-border listing handbook, which covers listing requirements from various exchanges around the world. The handbook lays out requirements of 19 different exchanges, and includes factors companies should consider when deciding where they want to list.
“That’s the sort of thing that plays to our strength because we have such strong global coverage,” Bibko says. “We can help clients list anywhere they want to.”