The number of foreign-based companies listing on the ASX is at an all-time high — why?
First, the minimal red tape.
While in theory there are plenty of ways for the state to intervene (a company can wound up by a court just because a court finds it ‘just and equitable’), there is little state intervention in practice.
For firms that are already listed on a foreign exchange, they can be exempt from most of the ASX’s listing rules. Also there is a far shorter wait time compared to the Shenzen and Shanghai stock exchanges.
Secondly, because of Australia’s large pool of investable funds – $2.2 trillion.
This is mainly thanks to its unique superannuation system. While it was intended to help Australians support themselves in retirement, it also helps foreigners see the benefit of listing their Companies in Australia.
The Australian market may be a minnow compared to New York and London but there’ll be no shortage of funds. When Fiji Kava (ASX: FIJ) recently listed on the ASX, they hailed the move as a major milestone for the company.
Thirdly, being more growth friendly because companies seeking to list do not have to be profitable.
While there is a profit test, there is also an asset test and companies need only meet one of them.
Companies meeting the profit test will have generated $1 million profit from the previous 3 years’ operations at least half of which must be from the last 12 months; whereas companies meeting the assets test will have at least $4 million net tangible assets or a $15 million market capitalisation.
As a result, there are nearly 150 foreign listings and nearly 100 more foreign ETFs.
This is an all-time high and it is steadily rising.
The two biggest countries represented are China and New Zealand. Some (but not all) are also listed on a foreign exchange or may have been in the past have delisted themselves.
For example Xero (ASX: XRO) listed on the ASX in 2012, having first listed on the NZX back in 2007. In February 2018, in spite of disappointment from NZ shareholders, they delisted from the NZX in search of greater capital and investors. One month after consolidating, they entered the ASX 100.
Are foreign companies treated differently?
Foreign companies which are dual-listed can access exemptions to ASX listing rules if they can satisfy the ASX that it’s abiding by the listing rules in its home country — meaning the prospect of an ASX listing appear less onerous.
The caveat is that they still need to be registered as a company in Australia, and if the ASX is the source of the company’s first listing then it will need to abide by ASX rules.
In addition they must specify the rights and obligations of security holders under the law of its home jurisdiction in its prospectus, and must to appoint a mediator with the ASX on Listing Rule matters to be available during Sydney business hours.
Meanwhile, there’s also the thorny issue of foreign ownership.
While there’s no ‘local investor’ reservation level per se, the ASX does have the discretion to require a certain proportion of a company’s share register to reside in Australia.
However, if foreign companies are going to go to the trouble of listing on the ASX, it is more likely than not they they will adopt the mantra of Haggai Alon, the boss of Israeli Company Security Matters (ASX: SMX).
When the blockchain-backed security company listed on the ASX Mr Alon declared “The ASX has given us a house and we are intending on making the Australian market our home”.
Should you invest in a foreign-based company on the ASX?
Invariably it comes down to whether or not you believe in their business model — but there a couple of things to take into account.
If the companies operations are also overseas, they can be hit by downturns in their economy even if the Australian economy is going well. This also goes for Australian based companies with overseas operations.
Conversely, if the Australian economy was to decline, so could the stock even if the home market was going well.
Overseas companies may also abide by different financial years, most likely the calendar year – but they will still report their earnings.
All companies on the ASX are required to have directors who are based in Australia – so even when the business and its operations are overseas investors will always have a locally based director to address local investors.
Ultimately, there should be no more risk in investing in a foreign company listed on the ASX or
Star Investing has a commercial partnership with some companies mentioned in this article. This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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