Listing in a Foreign Stock Exchange

Is the Grass Greener on the Other Side?

Is the Grass Greener on the Other Side?

In discussions surrounding listings and listing processes, there is an increasing consideration and evaluation of questions about international exchanges as an alternative or parallel exchange (i.e., dual listing) to listing on the Helsinki Stock Exchange. What are the benefits and challenges included in the alternatives? Although few Finnish companies are listed on international exchanges, there are several examples from other Nordic countries. One of the most famous is technology company Spotify, which previously listed on the NYSE (USA).

Let's delve into the strategic aspects of international listing.

Operational Activity and Ownership

The consideration might start with the company's goal for more international business operations, creating a clear operational connection to the target country.

Another factor could be the internationalization of the company's ownership. In practice, international investors are always involved in larger financing rounds, which can justify listing the company on an international exchange.

Peer Groups

One perspective in international exchanges is the number of peer companies in the sector. This can make it likely easier to gain attention from stock analysts; or in general, international investors may have a broader understanding of the sector, thus potentially increasing the company’s visibility and attractiveness among investors.

Trading Volume

It is important to assess whether the stock’s trading volume would be “sufficient” for reliable value formation in an international exchange. The same applies to domestic listings. If the stock becomes a so-called “forgotten stock,” the company often faces increased costs without significant commercial or ownership added value. Increasing shareholder value may also prove challenging.

Dual Listing

Finnish companies have experience in listing on both the Helsinki Stock Exchange and an international exchange. A historical example would be Avestapolarit, which was listed in both Helsinki and Stockholm. Nokia and Nanoform are modern examples.

In the context of a dual listing, it is important to assess the adequacy of trading volumes between the two exchanges. Dual listing can allow for the expansion of the ownership base to institutional investors who might find the Helsinki exchange too illiquid or whose rules may restrict investing. However, it is possible that trading may eventually focus only on the more liquid exchange, diminishing the significance of the other.

Significance of Domicile

The issue of whether to list as a Finnish company or change domicile before listing is also a point for consideration. The importance of the company's domicile is not straightforward and should be approached through the company's own goals and industry. From the perspective of operational business, local customers may “require” the establishment of a local company; similarly, investors may prefer companies with a “domestic” headquarters. Reasons for this might include more predictable ownership management or that the rules of asset management and investment companies may limit investing in foreign exchanges.

If commercial reasons later show that the domicile would be more naturally in the United States, for example, the current tax practices could, under certain conditions, enable a tax-neutral corporate arrangement that allows transferring the headquarters without tax costs to the company or its owners.

Transition to IFRS

Listing in an international exchange practically means transitioning to follow IFRS financial reporting standards. In this regard, a company planning to list should identify the main differences between FAS and IFRS in advance to avoid major surprises. Significant differences are often caused by, for example, the accounting treatment of lease and financing agreements and share-based incentive systems. It is also important to allocate enough time for the conversion process.

How can we help

When successful, an international listing can offer opportunities that outweigh the challenging aspects. Although there are many factors influencing the final decision, we believe that in the future, the activity of cross-border listings will increase in Finland as well.

We at KPMG, as a global multidisciplinary service provider, assist our clients in planning and executing international listings and other financial arrangements.