The virtues of trading stock abroad are sometimes overrated.
When Cadbury Schweppes began trading its stock (strictly ADRs, American depositary receipts) on the New York Stock Exchange in May, it joined 38 other listed UK companies. Thirty-three of these have joined the NYSE within the past 10 years. Clearly these companies see advantages in listing in an overseas equity market. What are these advantages? And what has dissuaded others from seeking, or maintaining, an overseas listing?
British Petroleum stock has been trading on the NYSE since 1970. Ian Stewart, chief press officer, reasons it makes sense for local investors to have easy access to BP's equity, even though a greater mobility of capital across borders these days suggests less need for an overseas listing. 'Without a loca l listing, investors can still encounter difficulty in trading the shares out of the company's domestic market,' he says.
Easier access to a company's shares, of course, also means easier access for the company to the pockets of the local investor. This point is taken up by Nigel a Brassard, head of equity capital markets at Kleinwort Benson, which helped both PowerGen and National Power to list on the NYSE last year. 'One reason for listing is to get access to investors in that country,' he says, adding that some investors are only willing to buy securities that are quoted on the domestic exchange. However, as a Brassard notes, 'the value to European companies of selling stock to Mr and Mrs Joe Doe of Cincinatti is sometimes questionable.'
The inability to attract the right kind of investor on a sufficiently large scale has caused certain companies to discontinue overseas listings. British Gas was the first major privatisation of the Thatcher government and was deemed ripe for listing on the Tokyo Stock Exchange. But having arrived in Tokyo, the company changed its mind, and delisted from the end of 1994. It was not alone. Since 1994, 26 overseas companies (including four British businesses), have taken the same step. Although its shares attracted some local interest, less than 1% of British Gas shares were held in Japan. Jenny Younger, head of investor relations, admits that 'experience showed us that we could not justify our listing, especially when most of the the big Japanese financial institutions were in any case located in London'.
The City's importance today as a financial centre is (hardly surprisingly) trumpeted by Clare Allison, press officer at the London Stock Exchange. More overseas companies have chosen to list their securities in London than in any other financial centre, and Allison suggests that the only reason why a company would want to delist from London would be because of 'a problem at their end - financial difficulties for example'.
Overseas demand for listings in London remains very strong, she claims, with eight companies from India alone having joined the market in the last 18 months.
The cost of listing abroad remains a major deterrent. Younger points out that maintaining a listing in Tokyo is a 'very, very expensive and time-consuming process', and a Brassard believes the cost of listing on the NYSE can run into hundreds of thousands of dollars.
There are also indirect costs, notes a Brassard. For example, companies have to restate their accounts when registering with the Securities and Exchange Commission (SEC). And many foreign firms have fought shy of joining the NYSE because of its relatively strict accounting requirements.
Only two German businesses, for example, are at present listed on the NYSE - Daimler-Benz and SGL Carbon. Thirty-five German companies are traded in London.