Highlights 

• Recently, Royal Dutch Shell announced that it will do away with its dual listing structure.
• In August, world’s largest miner BHP Group announced to unify its 20-year-old dual-listing structure and move its headquarters from London to Sydney.
• With dual listing, companies have greater access to capital.

Many companies in recent times have ditched their dual listing structure to simplify, reduce costs and enhance efficiency of their business. Royal Dutch Shell (LON: RDSA) recently declared that it will simplify its structure and do away with its dual listing structure to a single class of shares. Also, it will move its tax residence from the Netherlands to the UK. It also declared that it would remove Royal Dutch from its name and officially be called Shell. The oil company was registered with a Dutch Tax and a dual listing structure since 2005. 

Dual Listing is when a company’s shares are traded on another exchange apart from a primary stock exchange. The step mainly helps companies as it gives them more access to capital. The dual listing helps the stock to be active for a longer period of time as it is traded on two exchanges in two different time zones.  

But lately, many companies have opted to do away with the dual listing as it would make it easier for investors to understand and value and support the company.

In August, FTSE 100 constituent BHP Group (LON: BHP) announced to unify its 20-year old dual-listing structure and move it’s headquarter from London to Sydney. The company will have standard listing on the London Stock Exchange, but under the UK stock market rules it will be removed from the FTSE 100 Index.

But still many companies are sticking their dual listing plans. Global mining company Rio Tinto (LON: RIO) revealed that it has no plans to ditch its dual listing structure, as it’s a needless expense that would destroy advantages for its shareholders in London and Sydney.  

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What is Dual listing?

Dual listing is when a company is listed on more than one stock exchange and is registered under two different legal regimes operating as a single company. Dual listing is often opted by companies to convince governments to sign off on cross-border mergers and acquisitions.

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Dual listing has various advantages such as increased access to capital, additional liquidity, and ability to trade shares for longer time periods if it is listed on the different time zone countries outweighing the costs of a secondary listing. It may also bring some tax advantages but may also enhance cost and make corporate restructuring and acquisitions more difficult.

Pricing of dual-listed securities

The prices of securities with dual listing are not different after determining the difference in exchange rates because of Arbitrage. Arbitrage is the strategy used by traders to take advantage of difference in prices of securities in different markets.   

The trader purchase securities from a market with lower price and sell it on another market in higher price, which ensure than any gap between the two prices of same security does not last over a sustained period and the prices converge swiftly. 

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Benefits of dual listing

Improves efficiency

Listing of securities of a company only in one stock exchange may strengthen its performance, boost shareholder payouts and enhances the speed and flexibility of capital and portfolio actions.

Analyst at brokerage firm Sanford C Bernstein, Oswald Clint said that decision of Shell will remove the misalignment of two different revenue authorities and tax, removing friction and withholding tax issues around buybacks, while allowing them to increase materially.

In 2020, consumer goods giant Unilever (LON: ULVR) also announced that it is dropping its Anglo-Dutch structure to offer greater strategic flexibility. It currently has a primary listing in London, and other listings in the Netherlands and the US.

Post-Brexit

A dual listing may offer some tax advantages, but in case of Shell the Netherlands charges 15% tax on dividend for Dutch based business, while Britain does not. So, the shareholders of “A” shares receive normal dividends and are also subject to tax.

Although, the dividends to “B” shareholders are offered through a dividend access mechanism that avoids the Dutch tax rates and seems them streamed through a trust incorporated on the Channel Island of Jersey. It was authorised by Dutch tax authorities. 

Earlier, Unilever and Shell persuaded for the Dutch tax to eliminate their tax charges, which was later revealed to be a conclusive decision for Unilever when it decided to move its headquarter to London.

M&A

Single listing structure makes it easy for businesses to take mergers, acquisition, and demergers decisions.   According to analysts, dual listing makes it difficult for companies to make corporate restructuring and merger and acquisition decisions.

Wall Street activist Third Point previously called Shell to split into multiple businesses to enhance its value and revealed a £558 million (US $750 million) stake in the company. Similar pressure has been faced by large businesses to enable them to innovate and integrate. 

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