Understanding The Concept Of Cross Listing
Most companies start with a small capital. Running a bootstrapped company involves years of hard work and patience. But if you want to grow faster, you can raise capital. Now, this can be done through multiple routes like venture capital funds, private investors and an IPO.
But, you have already raised money from the domestic market and you know there’s more potential for your company to grow and go global. So what do you do? How do you get more capital?
Cross-listing is one way to go about this. In this blog, let’s find out more about cross-listing, why companies take this route, and what the pros and cons are of going in for a cross-listing.
Open Trading Account and Start Trading!
Cross-listing is a common method used by companies to list themselves on 2 or more exchanges around the world. To put it simply, it permits the common stock of an Indian company to be listed on foreign stock exchanges.
Initially, a company has a primary listing on one exchange and then expands to multiple jurisdictions over time. This process is also known as secondary listing and helps the company tap into capital sources that might otherwise be out of reach.
When a non-US company lists on a US exchange, it often experiences an uptick in its shares’ value in its home market. Research also shows that companies with cross-listings on US exchanges have a higher valuation compared to those without such listings.
In cross-listing, a domestic company directly joins the stock exchange of a foreign country without intermediaries. Indian companies don’t have the option to directly list on foreign stock exchanges. But, they can access foreign equity markets through instruments like Global Depository Receipts (GDRs) and American Depository Receipts (ADRs). Similarly, companies registered outside India can tap into Indian capital markets through Indian Depository Receipts (IDRs).
However, Indian companies can directly list their debt securities on overseas exchanges using masala bonds, foreign currency convertible bonds, or foreign currency exchangeable bonds.
What is ADR and GDR?
American depository receipts are a tool used by Indian companies to access the American market and raise capital. The Indian company provides its shares to an American Bank, which then issues ADR certificates representing the company’s shares in the American market.
These ADRs are traded on exchanges like NASDAQ or the NYSE. Investors who purchase ADRs receive dividends and capital gains in US dollars. The company must also provide detailed financial information to the bank that will benefit American investors.
Global depository receipts allow Indian companies to make their shares available in global exchanges. GDR transactions in global markets have lower costs. Overall, GDRs provide Indian companies with access to international capital markets.
List of top Indian companies that are listed in the US market using ADRs
- Dr Reddy’s Lab
- HDFC Bank
- ICICI Bank
- Infosys Ltd.
- MakeMyTrip Ltd.
- Tata Motors
- Vedanta Ltd.
- Videocon D2H Ltd.
- Wipro
Why do companies choose to cross-list their shares?
Improved public image and investment opportunities
Cross-listing boosts a company’s global visibility and promotes its products to a wider audience. The company can also improve its public image and gain access to markets with greater capital resources.
Disclosure and transparency
By adhering to the regulations of foreign markets, which are stricter than those of domestic markets, companies can instill confidence in investors regarding their brand and value in foreign markets.
Cross-listed companies tend to disclose more ESG data, which increases analyst coverage and makes information more accessible.
Higher liquidity
Cross-listing boosts the liquidity of a company’s shares by increasing trade volumes, reducing trading costs, and eliminating trading barriers. This liquidity ensures ease of selling shares when desired, as there is a plentiful supply of buyers and sellers in the market.
Challenges in cross-Listing
While a foreign listing can offer lots of benefits, it doesn’t always guarantee the attraction of foreign shareholders. Here are a few risks and hurdles associated with cross-listing:
Risk exposure
If the company is listed in areas that are prone to political and economic instability then cross-listing can expose companies to risks. For the listing to yield positive returns, the foreign country’s economic and financial policies should somewhat align to provide benefits.
Increased compliance burden
Cross-listed companies have to comply with multiple criteria related to auditing, internal controls, and corporate governance.
Meeting the listing requirements of the host country is a must, which may also involve adhering to local accounting policies. Navigating these complexities can be demanding for companies and can increase their compliance expenses.
Conclusion
Cross-listing is a strategic financial strategy that companies use to broaden their investor base and boost liquidity by listing their shares on multiple stock exchanges. This approach grants companies access to a wider range of investors and promotes transparency.
By going for a cross-listing, a company can strengthen its global footprint, enhance visibility, and get larger investments.
Trending Blogs: Invest in Small Cap & Mid Cap Mutual Fund & Stocks | US FED’s rate cut announcements | Companies affected by Rise in Crude Oil Price | Fall in IT Stocks | Launch of 4 New Indices | Revised Lot Size of Nifty Contracts | RBI Monetary Policy Committee Meet 2024 | ITC Share Surge After BATs Block Deal | Impact of RBI Circular on Currency Trading
Related Blogs – Top sugar stocks to invest in India in 2024 | Best liquor stocks you can add to your portfolio in 2024 | 5 Best Banking Stocks to Invest in 2024 | Top 5 hotels stocks to buy in India in 2024
Popular Stocks: ICICI Bank Share Price | HDFC Bank Share Price | CDSL Share Price | UPL Share Price | TCS Share Price | BHEL Share Price | Trident Share Price | IRFC Share Price | Adani Power Share Price
