South African Companies Go Public In Foreign Markets And Raise Millions
South African companies are active participants in the global markets, including assets and corporations listed on the Frankfurt Stock Exchange (FSE), the London Stock Exchange Alternative Markets (AIM), Plus Markets, NASDAQ, Toronto Stock Exchange (TSX), and locally within the JSE and ALTX.
In general, the typical pattern of going public has been to list on an international market where there is a higher access to capital and liquid retail market for investors looking to purchase their stock in the open market. Once they have raised sufficient capital, a dual listing onto the local South African exchanges allows for local market negotiations and leverage, especially in financial sectors and mining.
Going public on a foreign exchange allows South African companies to:
Leverage their assets within a foreign currency with foreign investment
The company’s assets which are often valued in Rand are become a trading currency in shares in Euros, Pounds, or Dollars. International investors who are keen on investing in South Africa turn to the familiar currency because it has less risk when it comes time to trade the shares, as they sell the shares in the same currency they bought them in. The South African company benefits from the foreign currency exchange in today’s immediate terms when bringing in the investment in foreign currency for their operations.
Open the trading of their shares to a larger market of retail and institutional investors
There is no question that the USA, Germany, the UK, and Canada have large pools of investors looking for opportunities to leverage assets such as the ones in South Africa. Many successful mining and technology companies have incubated within the African investment climate, and this has not gone unnoticed. Trading on the local exchanges of the foreign investors makes it easier for the foreign investors who want to invest, who otherwise would not know how to trade the JSE or ALTX. (In most cases, they would not be able to trade these exchanges via their brokerage houses.)
A quicker route to going public than local exchanges.
Possibly this is due to the company not meeting the listing requirements of the South African markets, but they qualify in other exchanges. Many development stage companies list quickly and easily oversees in the Small Business markets due to the keen nature of the listings departments overseas to increase small business investments. The strength of their local markets depend on a diversity of assets, companies, and investment communities to sustain the overall index. Therefore, some exchanges will be even favourable to floating South African mining companies for example, due to the proven track record, professional experience, and assets floating on their exchange.
International exposure of the South African business to open new markets, partnerships, and joint ventures
In addition to international listings, companies experience international press, exposure through news wires, marketing websites, and general exposure. The market attention drives interest in the retail market of shares being traded, the interest in the South African company itself, and can on occasion put companies on the radar of larger foreign companies looking for merger, acquisition, or joint venture opportunities. Becoming a player within these markets gives their investors the confidence to make a strategic move with the South African firm. It also allows for institutional investors to make strategic moves leverage the foreign assets in South Africa against their own currency, if the South African market looks to be heating up, it could attract a lot of investment.
Where Should South African Companies Start Their International Listing?
The Frankfurt Stock Exchange
A primary listing on the Frankfurt Exchange can be completed as fast as 3-6 weeks of which capital raising efforts can begin immediately. Today, with a total turnover of €5.2 trillion per year the Frankfurt Stock Exchange strengthens its position as the world’s 3rd largest trade-place for stocks and the world’s 2nd largest by market capitalization. The German Frankfurt Exchange has a primary market consisting of more than 100 million people, and has the fastest rate of growth and the highest income per head in the EU. European investors invest for the long term. And in most European countries there are major tax benefits for holding on to purchased stock for a certain amount of time as opposed to “dumping” it immediately into the market. The lack of investors that instantly sell a company’s stock allows for stability in stock price and opportunities for growth. Compared to the listing on other exchanges, such as the NASDAQ, OTC Bulletin Board, Canadian Venture Exchange (TSX) or the Alternative Investment Market (AIM) in London, Frankfurt stands out because of the ease of entry, (Audited financials are not required), fast process and low annual fees. Companies can typically raise from €2 million to €100 million plus on the Frankfurt Stock Exchange. The cost of listing is less than €100,000 and the main requirement is that the company has had over €250,000 invested in capital. Due to the ease, cost effectiveness, and market liquidity, the Frankfurt Stock Exchange stands out in the current economic climate as a viable place for South African companies to go public. In addition, annual fees do not exceed €5,000 and you do not require one of the top five accounting and auditing firms typical of other lower board exchanges.
In addition, the Frankfurt Stock Exchange companies can dual list onto the US markets, Canadian, London, and other markets but one cannot dual list from these markets onto the Frankfurt. Therefore, if a South African company was going to start their international listing in Europe, it is best to start with the Frankfurt and then dual list into the other markets as a foreign company.
As the authors of this article
If you are looking at talking with a market professional for listing a company on foreign markets, contact the author of this article at firstname.lastname@example.org. We help take companies public on the AIM, NASDAQ-OTC, Frankfurt (FSE), and Toronto (TSX) with a keen focus on capital availability upon going public.