The Hype over Dual Listings

Fresh into the new year, and after taking a good rest from the festivities, it suddenly struck me that I had some issues to comment on and wax lyrical over. Dual listings is one of them, and I got pretty much incensed over the recent hype over dual listing proposals made by several SGX-Listed companies (incidentally, I can recall about 6 and they all happen to be S-Chips or SGX-Listed China Shares).

The fact that everyone is getting excited over the dual listings had me thinking – was there a material change in the business which should elicit such a response? Or were people merely getting excited over a story (as usual) and following the herd instinct? The first to list on a separate bourse was China XLX, and when the shares started trading on HKSE, the share price over in Singapore jumped nearly 100% to 90+ cents before settling to a more “reasonable” level of about 65 cents, but still higher than the pre-dual listing news of about 40-50 cents. Apparently, the argument presented was that such companies which could list on two bourses should therefore command higher valuations, and so the Singapore share price should re-rate to follow those on HKSE.

The following is a laundry list of the China companies and their dual listing plans and status:-


One can observe that there are 5 companies in the list and they are either planning a listing in Taiwan or Hong Kong. One must then ask the rationale for the proposed listing, and whether it advances the company’s plans for expansion, or merely serves as a platform for its shares to be tradeable on both exchanges? Apparently, the issue of valuations had come up and was discussed in some articles around the time the news was made known of such dual listings. It is widely recognized and known (though never publicly acknowledged) that China companies in Singapore (“S-Shares”) trade at lower valuations than their counterparts in Hong Kong, Taiwan and even China. Arguably, of course, the size and scale of the company’s operations play a part in determining their valuation; but this can be conveniently forgotten as analysts scramble over themselves to compare companies in the same industry which are listed on different bourses.

If the reason was indeed that the company is seeking a dual listing to get “higher valuations”, this would necessarily imply that Management is share-price driven rather than value-driven, as a higher share price serves no practical purpose to the business except to raise its profile and provide more fodder for analysts and brokerages to crow about. Of course, one may provide the argument that a higher share price would mean money can be raised more easily through a secondary offering, with less dilution to existing shareholders. This again begs the question – why does the company need to raise money through a secondary offering? Seeing that the listing on another bourse is certain to raise more funds (except for China XLX where the listing is purely “cosmetic”), one should question why valuations should be higher in the first place and why Management places such importance on this fact. It is a hard question shareholders have to ask – is Management more concerned about building the business or are they being more share-price driven?

Another observation is that punters and traders are jumping up and down in excitement at seeing possible arbitrage opportunities by buying shares on one bourse and almost instantly selling them on another, until this bubble was burst when Hong Kong announced that it needed 15 days to deliver the scrip from Singapore over to Hong Kong, before the shares could be sold from there. That effectively killed off any enthusiasm for this method of money-making. However, it has not stopped die-hard punters from chasing up the prices of such dual-listing companies in the hopes that either a greater fool will buy it from them at a future date (most likely this refers to the actual listing date), as evidenced by the poor fools who bought China XLX at 90.5 cents; or that the prospects of the underlying business have suddenly become much rosier and the company is more investment-worthy than before it had announced the dual listing.

I find the latter reason to be untrue for a few reasons. Assuming the company, in all its good intentions, had decided to dual list to raise more funds, it could save costs and instead do a secondary offering right here in Singapore. The regulatory procedures and lodgement of a separate prospectus on another bourse incurs additional costs which shareholders have to bear. Being dual listed also means more expenses are incurred to maintain the listings, and more work has to be done to report news, press releases and results on two different exchanges. Recall that Creative Technology delisted from NASDAQ for this very reason – high costs of maintaining a listing on two separate bourses. At the same time, I also fail to see how exciting it can be when a company announces a fund raising exercise; and they do this by issuing new shares and diluting existing shareholders. Of course, companies may carefully conceal the true intention of the fund raising or cloak it in another form by releasing a very awe-inspiring press release, with mention of grand plans or new markets being conquered. However, I always like to err on the side of caution and assume that the laws of economics eventually ensure that all companies will revert to the mean in terms of growth potential, which means one need not get too carried away by optimism when the reality can be far more sobering.

To end off this post (which is beginning to sound like a rant – my apologies for that), all I will say is that one should be discerning and inquisitive when a company announces plans for a dual listing. One should scrutinize the announcement and its underlying implications before jumping into the deep end of the pool. Because sometimes, you may find that there are sharks in the water.

*Note: As of this writing, another 2 companies, Epure and Novo Group, have proposed listing on HKSE. It seems like the “fever” is catching.