ASX: An Attractive Market for US-based Firms? Are There Any Challenges?

  • May 23, 2020 AEST
  • Team Kalkine
ASX: An Attractive Market for US-based Firms? Are There Any Challenges?

Australian Securities Exchange (ASX) remains an attractive market for the listings of US-based companies, as getting listed on ASX is easier, quicker, and more cost-effective for these firms relative to exchanges in the US. Australia’s large, fast-growing, pension pool of around $3 trillion, main board listing and earlier entry to globally recognised indices make ASX the exchange of choice for international companies.

ASX Quick Facts

  • There are more than 280 international companies listed on the exchange.
  • Australia has the 4th-largest pension pool worldwide.
  • Initial public offerings on ASX typically exceed 120 each year, making ASX one of the most active exchanges in the world. 
  • Australia has a mandatory superannuation system, which aids the large size of the Australian pension pool, with a large percentage mandated for investment into ASX-listed securities. Powered by a 10.2% p.a. 10-year compound average growth rate (CAGR), superannuation assets are predicted to grow to more than $10 trillion by 2038.
  • Currently, maximum international listings on ASX are from New Zealand (55+).

Why Do US Firms List on ASX?

There are more than 45 US companies listed on the ASX, with the US accounting for the maximum international listings on the exchange after New Zealand. The cohort range across industries but the recent trend has been predominantly in the technology sector, which is one of the fastest-growing sectors in terms of overall new listings on the ASX.

Companies from the large capital market of the US benefit well from the Australian market dynamics. The size of the US public markets translates into the fact that earlier-stage firms, with yearly revenues ideally under $100 million or valued at around $1 billion market cap or less, battle to fetch investor attention. Moreover, though the US private markets are one of the highly active ones across the world, high-profile firms hold off listing up until they are well beyond that size (such as Spotify, Uber, and Airbnb).

Consequently, there is an entire generation of firms that would prefer having access to public markets, relative to private funding, at a prior stage, but their home exchange is not able to back this efficiently.

This is when ASX comes into the picture.

ASX thrives to bridge the gap for firms in the US market that would prefer using public markets to boost capital growth. These companies can then use ASX as a catalyst to reach an optimum size where they would catch the investor eye in their home market.

INTERESTING FACT- In 2017 and 2018, the largest tech capital raising of an IPO on the ASX has been a US company- Credible and Pivotal Systems, respectively.

Besides this, there are also advantages for the Aussie investors here- the important element of diversification, exposure to overseas companies, broader sectors, and more diverse underlying revenue streams, with the convenience of investing in an ASX-listed stock.

Current Stance of US-based ASX-listed Companies

The unprecedented pandemic is predictably having substantial impact on ASX-listed companies across various industries, as they strive to manage the financial and operational impacts on their businesses.

Just when the pandemic was making the investing world volatile and nervous, the strong headwinds from the ongoing pricing war between the oil honchos-Saudi Arabia and Russia along with weaker demand for oil due to coronavirus surged. The US refineries could not bear a low-price environment which left several ASX-listed oil companies caught between the cross fight of Saudi and Russia.

For instance, companies like Fremont Petroleum Corporation Limited (ASX:FPL), Australis Oil & Gas Limited (ASX:ATS), Brookside Energy Limited (ASX:BRK), 88 Energy Limited (ASX:88E) and Byron Energy Limited (ASX:BYE) have been trading near their 52-week low and are experiencing the pressure arising from the oil debacle.

Let us understand why- the higher API gravity makes the US crude much sweeter relative to its peers (Russia and the Middle East), thereby making it cost-intensive for the local producers. However, with Brent often trading slightly above WTI, there is tough competition to US oil producers and low pricing environment more difficult to sustain for them.

Another challenge in this COVID-19 environment is associated with the ASX formalities, which demand continuous disclosers and timely ones. For instance, as per ASX Listing Rule 3.1, entities impacted by COVID-19 must balance any need to keep the market apprised with the acute challenges of being able to provide a comprehensive and precise announcement that complies with the ASX as well as Corporations Act requirements. Moreover, there is no adjustment to change in the timing of these announcements once materially price-sensitive information turns out to be apparent.

Additionally, a common challenge that is more evident currently with economies on a downward spiral, is that there are not many resources available supporting foreign companies in a foreign country. Complying with regulations, including the very important Australia Taxation Office (ATO) one, tends to become difficult.

In March 2020, the Australian Securities Exchange (ASX) released a compliance update concerning the obligations of listed entities related to continuous disclosures, due to highly uncertain and rapidly changing environment arising from the COVID-19 pandemic. Moreover, it is important for listed entities to consult with the exchange regarding audit deadlines as early as possible in order to avoid automatic suspension.

Bottomline

The price and liquidity of a listed company’s shares can be affected by market conditions and activities beyond its control. COVID-19 has been causing disruptions that have kept the sinusoidal trend on the downside, as the selloff spree of March 2020 has demonstrated. However, the exchange seems to be edging up at the back of Australia reopening soon. With US states also easing restrictions, the ASX is likely to bring new hope again.

On 22 May 2020, the benchmark index S&P/ ASX200 settled the day at 5,497.0, down by 53.4 points or 0.96%.

 


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