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Cross Listing Of Multinational Companies On The African Stock Exchanges
 
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08-Feb-2012  
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Cross listing is the process where a company lists on more than one stock exchange. Listing on new stock exchanges implies that the services of lawyers, underwriters or lead brokers, auditors, registrars and services of financial valuers be sought.

These come with huge costs that are likely to scare the company in question. Cross listing on an exchange brings a lot of benefits to the investing public, the cross listed firm, the host exchange and the political landscape. It as well comes with challenges if the relationship is not well managed. This article seeks to discuss the challenges of cross listing, its impact on the host exchange, reasons why companies cross list and who the principal gainer is using examples on the Ghana Stock Exchange.

Hustle of cross listing companies
Despite the cost of listing on an exchange, some companies choose to list on different stock exchanges for various reasons. The cost of printing prospectus and other promotional activities are also hurdles to scare the company concerned. It also implies that, the cross listing firm in Ghana is ready to pay all the listing fees and comply with the entire listing requirements spelt out by Securities and Exchange Commission(SEC), the Ghana Stock Exchange(GSE), the Registrar of Companies and Bank of Ghana(BoG) if applicable.

Uncertainty looms in such a firm, as to whether the initial public offers would be successful or not. Nobody really knows. There have been instances where companies incur so much cost of printing prospectus, placing heavy media advertisement, paying for services of financial valuers, reporting accountants and auditors but their offers were not successful. The most recent uncertain listing on the Ghanaian market is that of Comet Properties (a real estate company in Ghana). Comet’s unsuccessful listing on GSE emphasizes the real difficulty for firms to list on an exchange.

Despite the uncertainty of the offer, most brave companies defied all odds and tried to list not only on one stock exchange but two or more. The process of listing on more than one stock exchange is cross listing. AngloGold Ashanti, Tullow Plc, Golden Star Resources and Ecobank Transnational Incorporated are examples of cross listed firms on the GSE.

The above listed companies are into exploration of natural mineral except Ecobank Transnational Incorporated, (ETI) which is a multinational bank that offers financial services. A traditional rendition of the strategic nature of cross listing is properly captured in a Nigerian proverb; “a toad does not move out in the day for nothing but in search for something vital”.

AngloGold Ashanti is listed on four stock exchanges and Golden Star Resources is both listed on the Canadian and the Ghana Stock Exchanges. ETI is listed on the Nigerian Stock, BRMV and the Ghanaian Stock Exchange. Tullow Plc Ghana, which features mostly in this article, is listed on three stock exchanges in different continents.

Impact Of Cross Listing Impact coefficient Positive Negative
Investing public More investment opportunities Sense of belonging and association with listing brand/firm Smaller shareholding means less control over major decision Less control over market fluctuations and share price control Company Additional source of funds/capital
Good risk management option Political and social acceptability Extra cost of managing extra shareholding Potential currency translational risk due to currency conversion/fluctuation.

Cross border brand management challenges due to existence in more than one market with distinct features. Political More opportunity to regulate the operation of the listing firm More revenue for SEC and GSE---market capitalization goes higher A political plus as good investment destination, credit, Increase in tax receipt Repatriation of profit to foreign country/mother company Social Domestic Employment opportunity Urgency in Social responsibility activities in operating sector/region Technological Transfer of technology and to new listed market.


CROSS LISTING IN AFRICA
The cross listed firms on African stock exchanges, with presence in Ghana
• Tullow Plc: Tullow Plc got listed on the Ghana Stock Exchange in 2011.
• ETI: ETI got listed on the GSE in 2006
• AngloGold Ashanti is listed on the Johannesburg Stock Exchange (JSE), the London Stock Exchange (LSE) Australian Stock Exchange (ASX) and the Ghana Stock Exchanges (GSE).
• Golden Star Resources is also listed on the Canadian Stock Exchange and the Ghana Stock Exchange in 2009.

General Reasons Why Companies Cross List
• Generate more capital
Raising additional capital to fund a large corporation’s business can be tougher, especially if the capital raised needs to be transferred to another country for business operation. It becomes difficult as rules and regulations inhibit successful transfers of such funds. In the case of Tullow Plc’s IPO in Ghana, cross listing in the Ghanaian market pooled about 109.5 million Ghana Cedis ($72.3m).

This was successful mainly because of higher confidence Ghanaians had in the Tullow brand to contribute more capital to explore the oil wells in Ghana. The investor confidence plays crucial role in the success of the initial public offer. Investors largely invest based on both sentiments and facts. The sentimental part is a sense of ownership in their countries oil discovery and Tullow was spot-on in using this to their advantage to raise 109.5 million Ghana Cedis ($72.3m) from the Ghanaian market. It is the ability of the listing company to know the true culture and sentiments of the country they want to operate in it and leverage on it.

• To entrench local content in ownership or market acceptability
Most big corporations that want to enter a new market or expand their operations can use cross listing strategy to establish a local content and increase acceptability of their presence. This is because of the enormous gains associated with being a locally trusted listed firm. Ghanaians who purchased Tullow, ETI, GSR and AGA etc now feel a sense of ownership. This position saves the cross-listed firms in the long run, as issues of strike actions and sabotages become minimal. It is no wonder Tullow Plc and Golden Star Resources which are both into exploration, have decided to list on the stock exchange in their new region of operation to avoid sabotages to a large.
To reduce their market risk

The financial challenges in Europe and America makes it difficult for businesses to sustain the prices of their stocks as prices fall at higher or alarming rates. With Africa emerging with an incredible higher rate of growth and high return on investments, firms like Tullow Plc see it as a fertile ground to raise and invest capital for a higher return.

• Competitiveness
All firms strive for utmost competitiveness in their industries. Competitiveness may come in different ways, but the stock exchange has given firms with global presence to entrench their global competiveness. Cross listing enables firms to gather enough capital, build greater brand equity with wide market reach and acceptability. Tullow Plc’s experience is typical of global brands trying to remain ever competitive irrespective of the new global economic and financial woes.

Performance of the Cross-Listed Firms
Tullow Plc has just listed on the Ghanaian stock exchange and it is doing fairly well by getting some good capital gains of about nine pesewa as at first week in November 2011 for its investors. It started trading on the GSE on 27 July 2011 at Ghc 31 per share. They recently declared an interim dividend on their stocks, which I believe is good for its investors. Even though this is very impressive, doubt still lingers as whether Tullow can continue declaring dividends, especially with the current reported fall in oil production in Ghana.
Impact on investors and company--- is it a mutually beneficial relationship?

The CFAO Case: was it purposely designed to raise money for their projects and exit the market?

CFAO got listed on more than one African stock exchange and obtained funds for the operations in the Sub Saharan African region. The company expanded and made huge profits but never paid dividend to their shareholders in Ghana. They delisted from all the African stock exchanges and are now a private company. There were little or no capital gains. Dividends were not declared.

“The Board of CFAO Ghana Limited tabled a special resolution at the company’s Annual General Meeting (AGM) of December 17, 2009 for de-listing from the GSE. The intended corporate action is subject to the policy of the CFAO group to de-list its subsidiaries from all stock exchanges including GSE. Shareholders at that AGM voted for the company to be delisted from the GSE. In line with the GSE de-listing rules, CFAO has made exit arrangements for all existing shareholders who wish to sell. The exit price is GH¢ 0.04, the share price on the day of the AGM”.

Source:http://www.ibrokerghana.com/news-and-market information/sectors-a-industries/finance/345-cfao-releases-de-listing-timetable.html Judging from this release, CFAO virtually used the African investors as means to an end. Worst of their action was their decision to delist from the GSE and other stock exchanges in Africa. This action by most multinational companies to exploit local investors is depressing. The investment public must start questioning the motives behind the listing of some of these companies? Even though their presence brings employment opportunities, they actually take more than they give.

With such a precedent, Tullow Plc must feel pressured to set good examples for other multinationals that have interests in investing in Africa. Cross listing indeed must be mutually beneficial to both the investment public and issuing companies.

Tullow Ghana paid an interim dividend of 0.0968 Ghana pesewas per share to their shareholders. This result is uplifting as it deviates from the typical exploitative approach from CFAO. Over the years, ETI has also been rewarding to its shareholders with dividends it often declares though it’s meager. The stock has fared well in the market, except for recent stumbles in the stock’s prices. This is largely associated with the recent merger and acquisition drives adopted by ETI to leverage its position in the African market. Its long-term performance is positive and shareholders should consider acquiring more shares now.

Who is the principal gainer?
Most often, investors tend to gain when they buy shares of companies that are performing better on the stock exchange. This is because of the extra income associated with the capital gains of well performing stocks. On the other hand, shareholders of poor performing firms often make capital losses if they sell at the prevailing market.

The situation even becomes worst if the company pays insignificant dividends. If this happens, the relationship is not mutually beneficial. The investors will lose. If the issuing company tries as much as possible to work well and make profits, pay good dividends and the stock performs well too on the exchange, the relationship then becomes mutually beneficial. This is essential in any investment contract.

As far as business is concerned, there would always be projects that must be executed with extra funds. After the project appraisal and the eventual conclusion of a positive net present value and an internal rate of return that is good enough to make the project feasible, funding is the next thing to source. If the issuing company (e.g. in a right issue) has lived up to expectation in the sight of investors and the stock price is good, all things being equal, they would be able to raise funds at a higher price to execute their projects in order to remain competitive.

On the other hand when the shares are performing poorly on the market and little or no dividends are declared, shareholders may be aggrieved and would end up selling to their stocks which would further reduce the company’s share prices. Hence it is better for the issuing company to ensure the efficient running of the firm to guarantee maximum profits and good returns on investors’ capital. Companies such as Standard Chartered Bank, Cal Bank etc. have lived up to expectation on the GSE so their right issues were successful.

There have been many instances on the GSE where the relationship between investors and issuing companies were not a mutually beneficial one. Most companies take investors money and for one reason or the other, do not put the funds into prudent use. Such firms continue to make losses especially on long-term projects hence locking the investors’ capital in the poor performing stock. In this case, I would say the company is the principal gainer and the investor a principal looser.

There is also another category of companies listed whose performance are not necessarily bad but have been greedy enough to pay their investors peanut dividends. They virtually did nothing to stop the stock price from falling but their main target was to acquire more stakes in other companies to the detriment of their investors. Ecobank Transnational Incorporated is the chief in that category.

They are closing in on a hundred percent stake in Oceanic Bank of Nigeria and have also taken over The Trust Bank Ghana. Their approach is not bad if the group makes higher profits and in the next financial year, and pays good dividends. Maybe, shareholders would change their mind and stop selling now, and by their holding on to the stock the price may go up.

 
 
 
 
 

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