Bursa bridge to secondary listings

WITH 47 listings as at end of November and at least six more initial public offerings (IPO) this month, Bursa Malaysia will clearly surpass its target of 42 for 2024. An exciting development is that companies listed on foreign exchanges are now looking at secondary listing in Malaysia.

In November, Hong Kong-listed Unity Group Holdings International Ltd, disclosed that it is exploring a secondary listing on Bursa. This move follows the announcement by two Singapore-listed companies, UMS Holdings Ltd (UMS) and Grand Venture Technology (GVT), in July and September respectively, that they are contemplating a secondary listing in Malaysia. It has certainly been a while since the secondary listing of OM Holdings Ltd (OMH) on the Main Market of Bursa in June 2021.

Publicly traded on the ASX since 1998, OMH became the first Malaysia-Australia cross-listing.

Global companies globally that are listed on two or more stock exchanges include Investec, Unilever, Carnival and Rio Tinto.

Many dual listings allow the shares to be fully fungible between the two exchanges.

For example, OMH shareholders will be able to transfer their shares listed on the Australian Securities Exchange (ASX) to Bursa, and vice-versa, for trading, allowing investors the choice in where they trade their shares.

A secondary listing is not an IPO as the company would have undertaken its maiden fundraising when it first listed on the primary stock exchange.

Nevertheless, a prospectus will be issued and the due diligence and approval process are similar.

A secondary listing, however, may be by way of a listing by introduction without the raising of funds at the point of listing.

OMH’s secondary listing was undertaken by way of introduction without the issuance of new shares. Certain shareholders of OMH transferred their shares from the ASX to Bursa to be made available for trading on the listing date. GVT has also said it may list by introduction.

Listing on more than one exchange means that the company must comply with two sets of listing rules, reporting requirements and corporate governance board practices. Expenses are higher as listing fees, compliance costs and potential investor relation expenses are required for each jurisdiction.

Whilst companies planning to go for an IPO will typically keep their intentions under wraps until their prospectuses are disclosed to the public through the Bursa website for ACE Market or the Securities Commission for the Main Market, the intention of a secondary listing will be made known publicly much earlier as listed companies may be obliged to make a filing to their stock exchange of their intention under their listing rules as a material development or potentially price sensitive information.

Although, Bursa has three markets, secondary listing is allowed only on the Main Market.

Foreign companies seeking a secondary listing on Bursa must be incorporated in a jurisdiction that is subject to the relevant laws that have standards at least equivalent to those in Malaysia, particularly with respect to corporate governance, shareholders and minority interest protection and regulation of takeovers and mergers.

Moreover, that stock exchange where the company is primarily listed must have standards of disclosure rules at least equivalent to those of Bursa. Notably, it must already have a primary listing on the Main Market of a securities exchange outside of Malaysia which is specified by the Securities Commission and be in full compliance with the listing rules of their stock exchange.

In other words, not only companies listed on stock exchanges not recognised by the Securities Commission are not eligible but companies listed on junior boards of stock exchanges such as Singapore Exchange’s Catalist and London Stock Exchange’s AIM as well.

Why secondary listing? Unity Group aims to boost its liquidity and valuation as well as to expand its investor base. UMS says that the listing could enable the company to tap a different equity market for future fundraising. The statements are similar. The main reason for having a secondary listing is for these companies to gain access to a larger pool of potential investors by expanding into another market. It will no longer be reliant only on its primary market for its fund raising activities.

The secondary listing on this new market will enhance the company’s visibility and public profile as it announcements and filings with this other stock exchange will be picked up and published by the local media.

The increased media attention and greater analyst coverage provides the new investor base greater familiarity with the company’s business activities and financial performance. A positive consequence of this broader investor reach is more people trading in its shares would mean greater liquidity.

The increased liquidity will be beneficial for investors, who will also get better pricing.

Why Malaysia and why now? Bursa is currently one of the top-performing bourses in the region. So why not? There have been numerous listings and many of the IPOs have done well, so hopefully higher valuations by having their shares traded in Malaysia. GVT has seen its shares dropped about 7% in Singapore over the last year, and about 60% lower compared with their peak three years ago.

As in the case of OMH, which operates smelters and manganese sintering facilities in Sarawak, these companies which have announced their intention for a secondary listing have Malaysian operations.

UMS and GVT are both semiconductor companies with factories in Penang. Unity Group, which provides energy management services, also has substantial operations in Malaysia.

The secondary listing itself can be a big media event and an opportunity to create awareness about their company and brand especially if they have suppliers, customers and bankers in Malaysia whereas money from their future fundraising may be utilised for the expansion of their Malaysia operations.