Cross Listing: All About Cross Listing

Last Updated: 6 Jun 2023

Many companies prefer to cross-list their stocks. Cross-listing is listing a company’s shares on a stock exchange in a jurisdiction other than the primary jurisdiction of its home country. It comes with its advantages and disadvantages. This blog post provides an in-depth understanding of the concept of cross-listing.

Cross-Listing

Cross-listing is the process that enables a company to get listed on the stock exchanges of different countries. In simple terms, Cross-Listing allows the listing of the common stock of an Indian company on foreign stock exchanges.

A company begins with a primary listing on one exchange and gradually moves to multiple jurisdictions. Cross-listing, also known as secondary listing, allows the company to gain access to capital that would otherwise be unavailable to it. For this reason, cross-listing is common for companies which started in a small market but needed more money to flourish.

It has been widely noticed that the listing of a non-US company on a US exchange gives the company’s shares a boost in the home market. Studies also prove that companies with a cross-listing on a US exchange tend to be more valued than non-cross-listed companies.

In cross-listing, a domestic company enlists itself on the stock exchange of a foreign company without any intermediaries. Indian companies are not yet allowed to list directly on foreign stock exchanges. The only way available for Indian companies to access foreign equity markets is through Global Depository Receipts (GDRs) and American Depository Receipts (ADRs). Companies incorporated outside India can access the Indian capital markets through the issue of Indian Depository Receipts (IDRs). However, Indian companies can list their debt securities directly on overseas exchanges through the masala bonds or foreign currency convertible Bonds or foreign currency exchangeable bonds framework.

What are GDRs and ADRs?

ADRs are USD denominated shares of non-American companies listed on US stock exchanges. An Indian company provides an American bank called the custodian or depository bank with its shares. The depository bank holds the shares in its custody and issues acknowledgement certificates in exchange. These certificates are called ADRs. One ADR can represent partial, one or multiple shares. ADRs are listed on the American stock exchanges and traded over the counter (OTC). Likewise, there are GDRs. The only difference is that GDRs are issued in countries other than the US.

Benefits to Cross-Listing

Cross-listing comes with significant advantages not just for the company in question but also for the investors.

Branding

Cross-listing enhances the company’s foreign exposure. Increased global presence helps it in improving its brand image in overseas markets. This can have a direct impact on the company’s top line. Cross-listing also increases media attention and better analyst forecasts for the company concerned. The fact that a cross-listed company must comply with more stringent listing requirements also increases its credibility.

Access to resources

Domestic companies get access to foreign exchange, which can assist in funding their operations at a global level. Cross-listed companies can also access and recruit from a larger pool of human resources. They trade in multiple markets, cutting across time zones and currencies.

Benefits to shareholders

From the shareholder’s perspective, a cross-listing increases the liquidity of their shareholding, diversifies their portfolio, and lowers their investment risk because the stocks are listed on exchanges of multiple jurisdictions.

Requirements and Hurdles with Cross-Listing

Foreign listing is not a guarantee for attracting foreign shareholders. The benefits of cross-listing can sometimes be overstated. Mentioned below are some risks or hurdles with cross-listing:

Risk exposure

Political and economic instability increases the risk exposure of the cross-listed company. The foreign country’s economic and financial policies need to be in sync with the home country’s policies for the listing to prove fruitful.

Increased compliance

Companies need to comply with dual and more complex rules, including auditing, internal controls and corporate governance regulations. The host country’s listing requirements need to be fulfilled. Foreign countries often make it mandatory for companies to adhere to local accounting policies. All this can prove to be challenging to companies and increase their compliance costs significantly.

Frequently Asked Questions

What are the examples of cross-listing?

Ans: In 2014, Alibaba Group Holdings Ltd. of China was turned down from the Hong Kong Stock Exchange listing. Out of necessity, it got listed on the New York Stock Exchange (NYSE). It became the largest IPO in US history at the time. Alibaba was finally allowed to be cross-listed on the Hong Kong Stock Exchange in November 2019.

Examples of some Indian companies listed in America (ADR)-

• Infosys
• HDFC Bank
• Tata Motors
• Wipro
• ICICI Bank

Some companies listed in countries other than the US (GDR)-

• Bajaj Auto Ltd. (UK)
• Bajaj Finserv (UK)

What are the motivations for cross-listing?

Ans: Cross-listing can be driven by various factors. Companies intending to expand their global footprint to access more and better resources typically apply for foreign listing. Their branding game levels up due to increased media attention. Cross-listed companies are usually perceived to be the leaders in their industry. The biggest motivation is the foreign money that flows to the company.