I recently heard that MTN will ask for Dual listing if Merger or takeover deal between Bharti and MTN happens. I wondered what this is all about as we haven’t witnessed such listing in India in past and neither I found any provisions of dual listing in our country’s law although government official some times say that Dual Listing provision exist in India and some times say it don’t exist . So searched for the meaning of Dual listing and compiled this article for you.
A dual-listed company or DLC (also referred to as a Siamese twin) is a corporate structure which involves two listed companies with different sets of shareholders sharing ownership of one set of operational businesses.
A dual listing of a company is a way for a company to have two equal listings (neither being a secondary) in different markets. The usual way in which this is done is by creating an ownership structure of two holding companies, each of which is listed in a different market. These then own 50% each of the group of companies that is the actual business.
In a conventional takeover one business acquires the shares of another. However when a DLC is created, both companies continue to exist, and to have separate bodies of shareholders, but they agree to share all the risks and rewards of the ownership of all their operating businesses in a fixed proportion, laid out in the equalization agreement. The equalization agreements are set up to ensure equal treatment of both companies’ shareholders in voting and cash flow rights. The contracts cover issues that determine the distribution of these legal and economic rights between the twin parents, including issues related to dividends, liquidation, and corporate governance. Usually the two companies will share a single board of directors and have an integrated management structure. A DLC is somewhat like a joint venture, but the two parties share everything they own, not just a single project.
The commonest reason for a dual listing is a need to list in two different countries. This may happen because of:
- a merger of companies listed in different countries, or,
- a new listing to gain access to capital from a larger market.
The best known examples of the first of these are the Anglo-Dutch groups Unilever and Reed Elsevier. What was once the most prominent example, Shell, is no longer dual listed.
The second are typically companies that are already listed in their home country which, as they get bigger, find it useful to have access to the larger amounts of money they can raise in larger markets. In the interests of their existing (home country) shareholders they need to retain their original listing.
The importance of some dual listings has diminished a little as it has become easier and cheaper for even private investors to trade in foreign markets.
Dual listed companies have special corporate governance requirements. The interest the shareholders in each of the listed companies have in the business is the same. This is usually addressed by guaranteeing equal rights in all respects (most importantly voting rights and dividends) and by an appropriate management structure (such a unified board). This implies contracts between the two listed companies and appropriate internal structures within each company.
Some problems can occur with dual listings. For example:
- the shares may trade at a discount in one market,
- the shares may be less liquid in one market,
- The complex legal aspects of the structure may add bureaucracy.
How is it different from ADRs/GDRs? :- In case of ADRs/GDRs, the companies deposit their equity shares with a custodian, say a bank, which in turn issues depository receipts to the investors. These receipts have all the rights, barring voting rights. Investors can convert ADRs/GDRs into underlying shares, which can be issued only within India and traded only on domestic bourses.
Allowability of Dual Listing in India: -
Dual Listing is not allowed in India and it will need major amendments to key corporate laws of the country. Some of the examples are as follows:-
1. The existing Companies Act and its proposed successor would both need to be amended. In the case of a dual listed company, an investor can buy shares in one country and sell it in an overseas market. That would need the Indian rupee to be fully convertible, something that the central bank is yet to allow.
2. The Foreign Exchange Management Act (FEMA) too would need to be amended. Besides, domestic trading in shares denominated in foreign currency cannot happen without the permission of the Reserve Bank of India.
3. It will need permission for trading of shares denominated or expressed in a foreign currency (if shares are expressed in Rupee and shares of foreign company are expressed in local currency, the equilisation will be disturbed). Therefore, it may be necessary to permit trading of shares expressed in a common currency, say dollar.