Valdene Reddy has nearly 20 years of experience in direct capital markets at the JSE. She is its director of capital markets and a board member of multiple JSE subsidiaries.
Not so long ago, UK pension funds represented a major stream of investment for British equities, allocating as much as 53% of their assets to domestic stocks in the late 1990s. However, a recent study by think-tank New Financial revealed only 4.4% of UK pension fund assets are now held in listed British companies, down from 6% last year and much lower than the 10.1% global average.
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Although the UK Chancellor is working to reverse the trend, the risk-averse nature of British pension funds’ investment strategies is deeply entrenched. That is why it is therefore prudent that FTSE companies explore alternative funding sources that might offset diminishing inflows. The capital access and liquidity advantages of a dual listing, for instance, could present British companies with the opportunity to tap into new funding sources while retaining the advantages of a UK listing – and they have become much easier to achieve.
In the past, executing a dual listing required a great deal of operational legwork. Companies had to navigate a variety of complex hurdles, including meeting legal and regulatory requirements. Aside from the impact on resources associated with this, it meant a lengthy timeline before companies could enjoy the fruits of a dual listing – not least access to much-needed liquidity and capital. However, considerable progress has been made over recent years in simplifying the process.
Companies already listed on established exchanges can now benefit from an expedited listing process, streamlining their entry into new markets. This is possible because established international exchanges such as the JSE, Africa’s largest exchange, now strive for greater consistency between their listing rules and the regulations of a company’s home country. A few, including the JSE, even defer to the regulatory oversight of a company’s home country entirely – especially for well-regulated bourses like the London Stock Exchange.
This results in a seamless end-to-end dual listing process – an attractive option for listed UK companies seeking to access the pockets of foreign institutional investors in a relatively quick fashion. However, there are other advantages beyond timeliness.
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By GlobalDataOne of the most compelling benefits centres on the diversification of a company’s investor base. Retail investors now make up an increasingly significant share of those investing in FTSE 250 stocks, largely due to increasingly popular passive vehicles like exchange-traded funds. Right across the market cap spectrum, companies will be keen to diversify their stock ownership, with most seeking greater exposure to institutional investors. Attracting greater institutional ownership provides improved liquidity, deeper price formation and access to a larger pool of capital.
A dual listing on the JSE offers a particularly good opportunity to reach this class of investor. With more than 30% of the JSE being dual-listed, this is a well-established market for trade opportunity and liquidity. South Africa is home to an abundance of institutional investors offering deep pools of liquidity via investment in JSE-listed counters. South African markets’ regulators even mandate domestic pension funds to invest a certain portion of their assets in local stocks. Given that regulators often consider companies with a dual listing as domestic in both markets in which they are listed, these businesses can expect a good degree of appetite from pension funds, boosting liquidity and inflows considerably.
Among the most actively traded dual-listed counters on the JSE are global majors such as Prosus, Anglo American, BHP Group, Anheuser Busch and Richemont.
Sirius Real Estate is one such company that has achieved tremendous growth following a dual listing on the JSE. The company’s CEO said its liquidity was boosted meaningfully in South Africa not only due to its inclusion in certain indices but also by a stronger willingness among South African institutional investors to engage in arbitrage, further driving liquidity. The newfound access to a much wider investor base empowered Sirius’ leadership to expand their focus on four key strategic pillars: net asset value (NAV), total returns, dividends and currency hedging, whereas in the UK market the company mainly focused on NAV and total returns. The team also praised the fast-track listing process for being clear, thorough and highly cost effective.
In addition, from the foreign investors’ perspective, FTSE companies represent a sterling investment. A £250m market cap UK company equates to a rand valuation of more than R5bn – which enables such a company to get exposure in the top South African indices, just as Sirius Real Estate did. Aside from the potential for enhanced risk-adjusted returns, portfolio diversification and greater liquidity, these investors gain access to well-established companies with strong governance structures and reporting standards. The latter are among the most valued characteristics of the companies in which pension funds invest, and attributes for which FTSE-listed companies are globally renowned.
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