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Providing Capital & Management Solutions for Private & Public Companies and Sophisticated Investors

Ross McDowall

BlueMount Capital in the news: “Bangladesh: Could corporate Sukuk take off?” IFN 17th March 2021

“Bangladesh turns 50 this month, and in a fitting celebration, March 2021 also saw the country’s first corporate Sukuk announced: a US$250 million issuance from Deshbandhu Group (DGL) expected to mature in 2028. Following on from the government’s first debut sovereign Sukuk back in December 2020, the move is an encouraging one as the economy gathers steam. But with significant barriers remaining to a conducive issuing environment, can Bangladesh maintain its momentum? LAUREN MCAUGHTRY speaks to the lead arranger of the deal to learn more.

DGL, a household name in Bangladesh for its food, sugar and drinks products, is seeking to raise US$250 million from international investors in order to expand its business and repay existing debts. The firm chose the Sukuk route as a means of achieving a lower cost of capital than expensive bank loans, with the deal arranged by London based Bedford Row Capital (BRC) and Australian investment firm BlueMount Capital. “We are excited about what this transaction symbolizes for Sukuk issuance,” said Dr Scott Levy, CEO of BRC, speaking to IFN. “It’s a clear symbol of where we think the market is going to go in the next year or two, with all sorts of new issuers coming to market.”

For more information, please download the IFN newsletter here.

Initial Public Offering (IPO) on the Australian Securities Exchange (ASX) Q&A Sheet

1. Are US companies welcome to list on the ASX?

ASX welcomes foreign companies including US companies to list. There are around 45 plus US companies listed on the ASX to date, with a pipeline of more companies especially in the technology space to come here every year.

2. What are the main requirements for listing on the ASX?

See Appendix 1

3. Are there any requirements re the industry the company’s business is involved in?

Generally, ASX does not impose restrictions on industry. Each IPO will be reviewed on a case-by-case basis in determining the suitability for listing. Technology industry is at this stage favored by the market and ASX has a very positive towards it as well.

4. What are the usual corporate structures involved?

For foreign companies, the “top-hat” structure is normally used. It means to set up an Australian public company as the listing entity, and this entity will “top hat” all the existing foreign entities. This Australian public company acts as a holding company and usually does not operate the main business.

An alternative method is to directly list the foreign entity (eg. a US Delaware company) via CDI. Both mechanisms have been used in the past by BlueMount.

5. What are the capital raising requirements at IPO?

ASX requires a minimum 20% free float at listing, however it favors a higher percentage. The calculation of this minimum of 20% is 25% of the pre-IPO value.For example, an A$100 million pre-IPO value would require a minimum capital raise of A$25 million.

6. Can capital be raised in a foreign jurisdiction for the IPO?

Yes. The capital raising can be carried out outside Australia but will be subject to foreign laws and regulations.
For US companies, raising money in US must comply with relevant SEC requirements. BlueMount can provide detailed information.

7. Who actually raises the capital required?

The capital is usually raised by BlueMount in conjunction with the company, and other advisors / brokers if applicable.

8. What are the requirements on Australian directors of the Australian IPO company?

The Corporations Act requires at least 2 directors to be Australian residents for an Australian public company. These directors should have previous ASX experience as well as corporate governance or industry experience. ASX recommends the majority of the board be independent directors as well as an independent chairman.

9. Are the companies in the corporate group required to be audited and is the auditor required to have a certain status?

Yes. The audited financial statements are compulsory for the listing and the audit report should be unqualified. BlueMount strongly suggests using a big 4 auditor or a top 2nd tier firm due to the requirements of some larger investors who insist on this as a condition of investing. The auditor should be the same firm for all companies in the group.

10. How long does an IPO take to complete?

10 to 12 months is reasonably expected to complete an IPO

11. Can BlueMount recommend all the necessary legal, audit and accounting advisors and what size/status should they be?

Yes, BlueMount can organise the appointment of the IPO team. The team members are usually reputable and well recognized by the market and the ASX.

12. What are the requirements for the number of shareholders for the IPO company?

For a foreign listing at least 300 shareholders, of which 75% (225) must be Australian residents.

13. What escrow requirements for shares will be involved?

For Assets test, the ASX will impose mandatory escrow, which usually, but not in all cases, is 2 years for all pre-IPO shareholders.
For Profit test, there is no mandatory escrow required but it is normal to have voluntary escrow, for all large shareholders

14. Who will coordinate the whole transaction?

BlueMount will coordinate the IPO as the Lead Manager

15. Is the success of the listing guaranteed?

ASX has the total discretion to decide if a company can be listed and therefore no guarantee is available. BlueMount has a track record of listing 5 foreign companies in the past few years. We are confident to bring a successful listing to our client.

16. What’s the average PE of ASX listed companies and specific industries?

The average PE for established ASX listed companies is around 44.3x recently.1 Once we know the industry that the company is in, we will conduct research and provide an average PE for the particular industry.

1 Bloomberg as at 8 January 2021 https://www.bloomberg.com/quote/AS51:INDA new company listing should expect to start with a lower PE and over a period of time increase it to the industry average.

17. Will the IPO be underwritten?

BlueMount, working with the company, will ascertain any underwriting possibility with qualified brokers, and when underwriting is not possible make best endeavors to make sure the listing and capital raising is successful.

18. What are the total cash costs of the IPO?

It depends on the size of the company and the capital raising. Usually, we would suggest allowing approx. US$1.5 million for the cash costs.

19. What are the good fame and character & police checks?

All directors of the IPO company must supply appropriate good fame and character & police checks. The Australian and foreign (eg. US) legal teams will assist with all of that.

20. What are main requirements on the major shareholders?

Details and background of the major shareholders will be required.

21. What are the corporate governance requirements?

Corporate governance has been a major concern to ASX, and the company must agree to adhere to the relevant requirements and demonstrate how they will do so. BlueMount can provide detailed information.

22. What is the purpose of listing?

The ASX has a negative attitude to foreign companies listing purely for reasons of “prestige” and we will need to convince the ASX that the main purposes are to gain liquidity for shareholders, access the Australian capital market, etc.23. What is the revenue needed for the listing?

Revenue is not an official criteria (ie. listing rules) to go public on the ASX. However, it will be difficult to list a company with no or small revenues these days. Profits or Assets are the two main entry methods (Refer to Question 13)

24. What is the post IPO value of shares and public relations?

The company must do everything it can to ensure the shares in the IPO company do not fall below the issue price.
We strongly suggest that the company:
l engage a stockbroker to facilitate buying and selling of the company’s shares and to provide research
l engage a corporate public relations firm to advise on investor relations, roadshows, or similar activities.

25. What are the reporting requirements as a public, listed company?

The reporting requirements for public, listed company can be found in the paper provided by the Australian Institute of Company Directors:

26. Compliance with SEC

An offer and sale of securities must be registered under the U.S. Securities Act of 1933 unless the transaction is exempt from, or not subject to, the registration requirements. Regulation S under the Securities Act provides that offers and sales of securities in “offshore transactions” are not subject to the registration requirements. In order to enable U.S. companies to list on ASX in compliance with Regulation S, the ASX sought and obtained “no action” relief from the U.S. Securities and Exchange Commission (SEC) in 2000. More details can be found in this paper provided by Baker McKenzie:

With numerous growth-stage companies from Australia, the Asia-Pacific, the US, Europe and Israel successfully listing on the ASX with good valuations and traction for scale, a clear trend has emerged – the ASX is increasingly being used by companies as either a steppingstone to a future dual listing on other exchanges or as a long-term listing venue.

A great example is Avita Therapeutics Inc (Initially listed on ASX in 2008, at a value of A$8 million, dual listed on NASDAQ in Oct 2019, now has an A$1.3 billion / US$952 million market cap).

Appendix 1

Spread Minimum 300 non-affiliated investors @ A$2,000
Free Float
The free float is a minimum of 20% and represents the capital to be raised at IPO.
The calculation of this is 25% of the pre-IPO value. For example, an A$100 million pre-IPO value would require a minimum capital raise of A$25 million. The free float:
  • Must be non-affiliated
  • Restricted securities and those subject to voluntary escrow do not count towards the free float requirement
  • Generally only IPO investors will be counted in as free float from capital that needs to be raised at the IPO.
Profit test entry requirements A$1 million aggregated profit from continuing operations over past 3 full financial years; and
A$500,000 consolidated profit from continuing operations over the last 12 months before admission
OR
Assets test entry requirements A$4 million net tangible assets after IPO expenses; or
A$15 million market capitalisation

The Secret to a Successful IPO

There are many measures of success for initial public offerings (IPOs). First and foremost is completing the deal and raising the intended proceeds. From the perspective of remaining and new shareholders, however, the subsequent short-term trading performance is more often seen as the measure of a good IPO as opposed to a bad one.

For the board and management of the newly listed entity, their measure of success and their reputation will depend on how well the newly listed entity performs in the medium term and delivers on the investment proposition on which new shareholders based their investment decision.

Different stages

It is important for ongoing board and management to recognise that there are two quite different stages in the journey to becoming a successful listed entity.

The first is all about the transaction which delivers the listing.

Many management teams mistakenly see this as the ultimate objective and, following months of frenetic activity, expect their lives to return to the way they were pre-IPO when they can once again concentrate on running the business. Regrettably, that is not the case. It is quickly discovered, as they move into the relationship stage, that life will never be the same because new obligations and responsibilities require a significant cultural change.

The second involves building relationships with new shareholders, which requires time.

So, what should Board and management of a new IPO company be doing to ensure that the transition to a listed entity is as seamless as possible and places them in the best possible position to build a successful relationship with their new shareholders?

Firstly, thought should be given at an early stage to governance issues such as board composition – diversity, independence, and skills matrix – and remuneration structures. This helps to ensure that the entity does not run into issues with regulators, shareholders, and governance advisers once listed.

Much of this work is often done by advisers and bankers to the IPO who, understandably, are generally less available post-IPO. So, having a dedicated internal resource involved in the IPO process provides continuity and, possibly, a candidate to run the Investor Relations (IR) program post-listing.

Essential Support

Once the IPO is complete, the onus is on management to recognise that the act of becoming a listed entity will make a substantial difference to how the organisation is run. As well as having a significant number of new shareholders, who will not understand the business in the same depth and detail as management, the organisation’s reporting and disclosure regime will be quite different. Senior management need to understand new requirements covering issues such as continuous disclosure and dealing in the entity’s equities. Failure to adhere to these new rules can create serious reputational damage to the organisation, the board, and the management team.

The organisation also needs to understand quickly what its obligations are in terms of interacting with its new shareholders and how it plans to develop and execute an effective IR program. Like any corporate function, the IR program needs to be appropriately resourced, well planned and executed and monitored on an ongoing basis.

Both the CEO and CFO need to show leadership and be committed to its success, particularly for smaller organisations where the appointment of a dedicated IR function may not be cost-effective.

Often the IPO company outsources the post-IPO work to specialists who then work with the company on an ongoing basis. We can recommend a number of these specialists if required.

From the board and management’s perspective, the success of an IPO will not be measured by the issue price or the premium achieved on listing. Rather, they will be judged on their ability to take the new entity and deliver long-term value for shareholders. There are many factors that will impact performance, some of which will be outside of management’s control.

However, engagement during the IPO process with a view to recognising the interests of new shareholders and working in advance of the IPO to develop an effective plan to manage these new relationships post-listing will go a long way to delivering an excellent outcome for all stakeholders.

Introduction

A foreign company completing a listing on the ASX may have a large part of its shares on issue held by management and pre-IPO investors and these are usually subject to escrow and may not be able to be traded for a period of time.

This means that there could be a smaller number of “free trading” shares in the market and the company has reduced “share liquidity”.

All companies completing their first listing have been private or unlisted public companies and may not have had an independent board of directors, limited internal controls and corporate governance or are not at the standard required for a listed company.

Unlisted companies have not had to bother about what the investing public thinks about them, nor did they have to concern themselves too much with corporate regulators or the stock exchange.

The owners of foreign companies often do not understand the Australian culture or the capital markets.

All the above are real challenges for newly listed companies and need to be addressed so that the company will flourish post IPO.

Share Liquidity

The company should aim at increasing its “share liquidity”.

An illiquid stock will not be attractive to investors, as they fear that they will not be able to quickly sell their shares and the market views with some suspicion the value of a company with low liquidity.

Ultimately the major owners of the company may wish to sell their shares, and this will be difficult in a stock with low liquidity.

Additionally, where there are few shares able to be traded in the market the sale or purchase of a small number of shares can detrimentally affect the price.

The usual and best way to increase liquidity is to issue more shares to new investors via a secondary issue after the IPO so that there are many investors holding and trading the shares. Before such a decision is made however, there are several matters for individual companies to consider.

Having an informed public which is commented on below is vital as is having a “house” stockbroker / market-maker whose duty is to ensure as far as possible orderly trading in the company’s shares.

Independent Board of Directors

The corporate and ASX regulations governing listed companies require that there be a reasonable number of independent directors on the Board.

An owner of a previously unlisted company can face a learning curve having to share his control with other directors on a listed company.

Learning how to deal with independent directors is a matter of getting to know them over a period, establishing proper communication between directors and having them committed to the company’s values and aspirations.

Internal controls

An unlisted company owned usually by one or two persons might not have internal controls over the safeguarding of its cash and its various assets to the standard required of directors of a listed company, where the very highest standards are required.

A company can obtain assistance to achieve and continue such controls.

Corporate Governance

The corporate regulator and the ASX require remarkably high standards of corporate governance by listed companies.

Most companies strive to have a high level of corporate governance.

These days it is not enough for a company to merely be profitable, it also needs to demonstrate good corporate citizenship through environmental awareness, ethical behavior, and sound corporate governance practices.

Corporate governance essentially involves balancing the interests of the many stakeholders in a company-these include its shareholders, management, customers, suppliers, financiers, government, and the community. Since corporate governance also provides the framework for attaining a company’s objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance, measurement, and corporate disclosure.

Breach of these standards could lead to suspension of the company from the ASX, a large downturn in the value of the company’s shares, legal action taken against the directors and even class actions taken against the company.

It is vital that the company’s reputation be spotless

Ensuring a high standard of corporate governance rests with the directors, however they should be supported by assistance from specialists knowledgeable in this field.

The investing public

The public markets must be kept aware of the company’s activities and how it is progressing and prospering.

If the company does not inform them then how are they to know? An uninformed public will have little interest in the company’s shares.

Informing the public should be a priority of a listed company and a corporate public relations program and investor relations programs managed by professionals often achieves this.

The Australian culture and the capital markets

This is one of the major problems for a “foreign“ company listing in Australia or for that matter in any Western country, however it can be overcome in most cases by having some professional assistance.

Dos and Don’ts

The following tips are for companies which seek to go to public:

Dos Don’ts
Keep the market fully informed, especially with materially significant information Overhype the stock prior to IPO
Have a small board with a mix of technical and commercial experience and qualifications Set-up overly large board
Separate technical and commercial director roles and physical separation of offices Directors that do not have the right skill set
Have a proven track record of success with directors Appoint directors with little or no industry experience or who have “background” issues.
Approach governance as a value adding process for shareholders, not a compliance nuisance Ignore or downsize the importance of governance.
Invest in a culture of transparency Be wary of directorship conflicts
Automate email news alerts and build your email database Miss strategy milestones.
Communicate frequently and regularly with stakeholders Complicated or highly technical presentations no one can understand
Have a combination of quality assets Have mediocre or substandard assets.
Implement a sound capital structure Have haphazard and careless company financing,
Pitch and refine the investment story Poor timing trying to raise capital during major holiday periods
Seek external help in non-core areas such as marketing and financial PR Avoid long periods with no news flow to investors
Keep momentum in your second year A lack of support from a major broking house or institutional investoron

Post-IPO

It is vital that the company commits time and some costs to post-IPO matters which usually include:

  • obtaining the services of a “house” stockbroker / market-maker
  • Issuing more shares to new investors at an appropriate time to enhance share liquidity
  • managing and enhancing the relationship between all directors
  • ensuring that as far as possible the share price is not affected by the sale of shares below market expectations
  • continual road shows to investors
  • continual public relations and media coverage
  • understanding its future objectives and assisting the company to achieve these
  • having observers at Directors meetings and strategy meetings who are available for advice on corporate matters as needed
  • ensuring that the company has strict internal control and corporate governance procedures
  • ensuring that culture issues are considered and overcome

Appendix

Examples of Good and Bad Post-IPO Performance

The value of the company’s shares is one of the most important factors to shareholders. An increasing share price can allow the company to raise more funding in the future and use its shares in transactions such as an acquisition of another business. If the share price increases, it means that the existing shareholders suffer less dilution. If the share price decreases the opposite of the above usually applies.

Examples of Good and Bad Post-IPO Performance

About BlueMount Capital

BlueMount Capital specialises in bringing US companies to the ASX, and has an office in Los Angeles to service its American clients.

Len McDowall
Managing Director
Level 32 200 George St
Sydney 2000 Australia
Telephone +61 2 8277 4112
Email sydney@bluemountcapital.com

Alex Chen
Director and USA representative
1055 W 7th, 33rd Floor, Penthouse
Los Angeles CA 90017 USA
Telephone +1 212 470 6997
Email losangeles@bluemountcapital.com

Technology and International Stock Exchange Listings for US companies

An IPO is often the most important capital markets and wealth creation event in a corporate life cycle. Unmatched access to capital at a lower cost is a clear benefit in favour of an IPO, along with corporate branding opportunities and a host of other benefits.

Companies consider three things when choosing a listing location—the actual out-of-pocket costs for establishing and maintaining the listing, the effects on valuation and liquidity, and the nonfinancial benefits.

However, before addressing these substantial IPO listing considerations a US private company considering an IPO, with a value of less than US$1 billion must realise that it is almost certainly too small to list successfully in the USA these days. Moreover, the competitiveness of the US public market has been seriously challenged in recent years as indicated below:

  • The age of companies at time of a US IPO has increased (from ~6.5 to ~10.5 years);
  • The annual number of US IPOs decreased (from ~400 to ~100);
  • The valuation of US IPOs has increased more than 6x.

IPOs in the United States typically have significantly high expenses. Legal and accounting fees, printing, brokerage charges to raise the capital, insurances, director fees and other related expenses are substantially higher than in many other countries.

In particular, companies trying to go public in the US are prone to litigation and enormous expense. Floats are fewer but larger, because by the time the company reaches a stage where it can afford to list, it is mature. For a technology company to list on Nasdaq, it needs to be circa US $ 1 billion to get any traction. Conversely, listing overseas, for example on the Australian Securities Exchange (ASX), can present itself as the ideal market for technology companies valued under US$ 1billion.

The Securities and Exchange Commission (SEC) regulatory compliance expenses are also significantly higher than internationally. These expenses can become very material for companies having a post-IPO market value of less than US$ 1billion. It is often felt that in the United States a small company has to pay too much in fees and discounts when it sells its stock to the public.

Destinations for US companies under US 1billion in value.

There are two self-contained regions that are popular with US companies wishing to go public, outside of the USA, which are Europe and Asia Pacific. However, Australia also represents an increasingly popular destination.

Why are foreign companies listing in Australia?

Australia’s large fast -growing pension pool, main board listing and earlier entry to globally recognised indices makes the ASX the exchange of choice for international companies. To date, more than 280 international companies are listed on ASX.

Access to growth capital is the major attraction of the ASX for international listings and this article explains how and why this is the case.
Australia has the fourth largest pension pool globally and also one of the fastest growing. Superannuation assets total A$2.6 trillion and this is predicted to grow to A$9.5 trillion by 2035.

The reason behind the size of the Australian pension pool is the compulsory superannuation system introduced by the Australian Federal Government in 1992. The sheer weight of this pool, where a large percentage is mandated to invest directly in ASX-listed securities, makes the Australian market an attractive venue for international companies looking to access capital for growth.

Why the ASX?

In addition to capital, an ASX listing offers a number of other benefits for an international company looking at global public markets. These include a highly active exchange, a main board listing and earlier entry to globally recognised indices.

The ASX is a very active exchange, typically exceeding 120 initial public offerings (IPOs) a year and trading volumes averaging $5.6 billion on a daily basis.

The ASX’s main board listing, provides a globally recognised robust regulatory environment and access to the full breadth of investors from retail to global institutions. Access to the main board for earlier-stage growth companies is in contrast to a junior board listing, typical in other jurisdictions, where full access to the investor base can be more limited.

Often, institutional investor mandates stipulate fund managers limit their investment to a globally recognised exchange and not extend to many secondary boards or smaller main boards, examples of which are the AIM market in the UK, TSX-V in Canada, GEM in Hong Kong and Catalist in Singapore.

Index inclusion is another key factor. ASX has two globally recognised S&P indices, the S&P/ASX 300 and S&P/ASX 200. The importance of index inclusion to a listed company is the access this provides to institutional investment, both passive and active.

Institutional mandates are typically mandated to a recognised index and when a company enters an index it will lead to extended investment reach, both domestic and global, as that index weight increases.

The institutional investment in the S&P/ASX 200 index is comprised of about 45 per cent from global asset managers and 55 per cent Australian, meaning companies listed on ASX can have a register of globally recognised investors at an earlier stage than other markets.

Achieving global reach.

In the past five years there has been an increase in the number of international companies listing on ASX. It is an attractive listing venue for international companies from a number of different markets but these can be broadly characterised by (i) companies located in a constrained home capital market and (ii) those where size can cause them to be lost in their home market.

Getting lost in your home market.

In contrast, companies from large capital markets such as the United States also benefit from the Australian market dynamics. The size of the US public markets means that earlier-stage companies, with annual revenues below US$100 million or valued at US$1 billion market capitalisation or less, struggle to foster investor attention.

The US private markets are the most active globally and feature high-profile companies such as Uber, Spotify and Airbnb who have held off listing until they are well beyond that size. As a result, there is a whole generation of companies that would prefer to access the public markets, versus private funding, at an earlier stage, but their home exchange cannot support this.

ASX is bridging the gap for companies in these larger markets who would like to use the public markets to raise growth capital and can use ASX as a springboard to reach a size where they would attract attention in their home market.

There are currently 47 US companies listed on ASX. The US cohort of companies range across industries but the recent trend has been in the software and technology sector.

Why are technology companies listing on the ASX?

Technology is the fastest growing sector on the ASX.

Numerous growth-stage technology companies from Australia, the Asia-pacific, the US, Europe and Israel are successfully listing on the ASX with good valuations and traction for scale. These listings illustrate a clear trend which has emerged, that is the ASX is increasingly being used by technology companies as either a stepping stone to a future dual listing on other exchanges or as a long-term listing venue.

Many young technology companies are listed on ASX. Usually, in the US and other major markets, such young companies are considered as mid-stage or late-stage pre-IPO growth firms, and they seek venture capital as Series B, Series C, Series D, etc.

However, in Australia, retail investors accept investing in high-risk young firms that are still figuring-out their growth-model.

The key advantage for investors is that growth in the ASX technology sector, in both domestic and foreign companies, expands the universe of available investing options.

The ASX – A baby Nasdaq.

The ASX is targeting smaller tech companies that would not be able to list on the Nasdaq.

The ASX is positioning itself as a late-stage venture capital funding market with companies that have de-risked their model, have proven their revenue and are looking to scale their businesses and potentially go public to provide liquidity for their shareholders and acquisition currency.

Final Thoughts.

If a company is considering an IPO it will have recognised that it is one of the most important capital markets and wealth creation event in its’ corporate life cycle. That recognition should have extended to all of the factors that will influence the likely success of an IPO. Listing location should be high on that list of factors when formulating an IPO strategy. BlueMount Capital are experts in developing appropriate strategies and facilitating an IPO listing, particularly in Australia. BlueMount would welcome discussing with you how the capital raising opportunity which Australia represents can add value to your listing potential.
Data illustrating the ASX opportunity.

Technology valuations on the ASX.

Examples of US technology companies listed on ASX

Top Ten Technology “Unicorns” on the ASX

About BlueMount Capital

BlueMount Capital specialises in bringing US companies to the ASX, and has an office in Los Angeles to service its American clients

Len McDowall                                                         Alex Chen

Managing Director                                                Director and USA representative

Level 32 200 George St                                                1055 W 7th, 33rd Floor, Penthouse

Sydney 2000 Australia                                                Los Angeles CA 90017 USA

Telephone +61 2 8277 4112                                         Telephone +1 212 470 6997

Email sydney@bluemountcapital.com                    Email losangeles@bluemountcapital.com

 

Healthcare and International Stock Exchange Listings for US companies

An IPO is often the most important capital markets and wealth creation event in your corporate life cycle. Unmatched access to capital at a lower cost is a clear benefit in favour of an IPO, along with corporate branding opportunities and a host of other benefits.

Your company should consider three things when choosing a listing location—the actual out-of-pocket costs for establishing and maintaining the listing, the effects on valuation and liquidity, and the nonfinancial benefits. (A fuller discussion of the pros and cons of listing on the Australian Securities Exchange (ASX) versus the Nasdaq or NYSE can be found in the second of this series of BlueMount Capital’s articles: “International Stock Exchange Listings for US Companies”.)

However, a US private company considering an IPO, with a value of less than US$1 billion is too small to list successfully in the USA these days.

IPOs in the United States typically have significantly high expenses. Legal and accounting fees, printing, brokerage charges to raise the capital, insurances, director fees and other related expenses are substantially higher than in many other countries.

Therefore, as a healthcare company, you should consider all of the relevant factors that all global Listing Exchanges’ offer before committing to what might appear to be the most obvious or easiest IPO route. Are you ready to engage in such considerations?

Why are healthcare companies listing on the ASX?

Are you aware that Australia has a strong healthcare, biotech and med-tech ecosystem with world-class healthcare companies, research facilities and informed investors? This Listing Exchange profile allows companies listing on the ASX to raise capital for both commercialisation and future growth.

With over sixty-five healthcare listings since 2013, the ASX also provides a unique platform to join an impressive peer group of both emerging and mature companies, across pharmaceuticals, medical technology, biotechnology, digital health, medical practice and pathology operations.

The ASX now has sixteen listed healthcare unicorns. In total there are 170 plus healthcare, biotech & med-tech companies listed on ASX with a combined market capitalisation of over A$248 billion.

With numerous growth-stage healthcare companies from Australia, Asia-pacific, the US and Europe successfully listing on the ASX with good valuations and traction for scale, a clear trend has emerged, the ASX is increasingly being used by healthcare companies as either a stepping stone to a future dual-listing on other exchanges or as a long-term listing venue. (A sample of examples of ASX Unicorns is provided in the table below.)

Many young healthcare companies are listed on the ASX. Usually, in the US and other major markets, such young  companies are considered as mid-stage or late-stage pre-IPO growth firms, and they seek venture capital as Series B, Series C, Series D, etc.

However, in Australia, you may be surprised to learn that retail investors accept investing in high-risk young firms that are still figuring out their growth-model. The key advantage for investors is that growth in the ASX healthcare sector, in both domestic and foreign companies, expands the universe of available investment options, which in-turn creates a significant opportunity for healthcare companies like yours!

Observations based upon Healthcare Valuations on the ASX

When comparing the ASX with alternative global listing opportunities for healthcare sector companies, with between $50m and $1bn capitalisation, it is clear that the ASX is second only to the New York based exchanges in terms of the number of companies listing. However, both US exchanges have been trading far longer than the ASX and therefore have a large number are legacy listings. Moreover, these US Exchanges have experienced declining listing numbers and significant increases in qualifying listing valuations over the past ten years.

In the table above, you can see that the Nasdaq and NYSE have far higher median liquidity velocity ratios than the rest of the Exchanges for both larger and smaller healthcare stocks. The ASX is not the leader in terms of the other global Exchanges for small healthcare stocks, it is third behind Singapore and Toronto Stock Exchange, but for larger companies it is the leading Exchange based upon liquidity velocity. Market liquidity is important to your choice of Listing Exchange for a number of reasons, but primarily because it impacts how quickly you can open and close positions. In a liquid market, a seller will quickly find a buyer without having to cut the price of the asset to make it attractive.

Where the ASX outperforms all other exchanges, is in Median EV/Sales and Median P/S multiples where it is the most favourably priced compared to all the other exchanges for smaller healthcare companies

(Enterprise value-to-sales (EV/sales) is a financial ratio that measures how much it would cost to purchase a company’s value in terms of its sales. A lower EV/sales multiple indicates that a company is more attractive investment as it may be relatively undervalued.)

(The price-to-sales (P/S) ratio is a valuation ratio that compares a company’s stock price to its revenues. It is an indicator of the value that financial markets have placed on each dollar of a company’s sales or revenues.)

Looking at the number of companies listed on each of the exchanges and comparing small to large healthcare companies, we can see the ASX is second largest for small, but tied in fourth place for larger capital raises.

From these figures, which lack a longitudinal dimension. it is hard to deduce that the ASX accommodates smaller company listings than larger ones. However, it is clear that the median market value of healthcare listed companies is lower.

In this regard it is clear that one of the ASX’s advantages over listing alternatives is the comparatively low level of market capitalisation required to list. Moreover, the comparatively high level of capitalisation, which it appears to be necessary to list on the Nasdaq, should suggest that for companies with comparatively low levels of capitalisation listing on the Nasdaq may prove difficult.

Final Thoughts

It is evident that the choice of global Listing Exchange, for your healthcare company when considering an IPO, is more complex than is first evident. Understanding how the performance of each Exchange may compliment, or not, the IPO profile of your company requires the appreciation of many factors if your company is to maximise its IPO opportunities. Therefore, if you are considering an IPO, why not contact BlueMount Capital and let them use their expertise to assist you in making the right Listing Exchange decision?

About BlueMount Capital

BlueMount Capital specialises in bringing US companies to the ASX, and has an office in Los Angeles to service its American clients

Len McDowall
Managing Director
Level 32 200 George St
Sydney 2000 Australia
Telephone: +61 2 8277 4112

or

Alex Chen
Director, and USA Representative
Penthouse 1055 W 7th, 33rd Floor,
Los Angeles CA 90017 USA
Telephone: +1 212 470 6997

International Stock Exchange Listing – Alternatives for US companies

In the past five years there has been a marked increase in the number of international companies listing on the Australian Securities Exchange (ASX). Why is this happening? What are the thought processes and market dynamics that attracted these companies to list on the ASX? Where these companies are U.S. based, what were the factors that stimulated them to look outside their home capital markets? Are the experiences of these companies relevant to your own capital raising considerations?

Is Australia attractive to overseas IPO listings?

With numerous growth-stage companies from the US successfully listing on the ASX with good valuations and traction for scale, a clear trend has emerged. The ASX is increasingly being used by growth-stage companies as either a stepping stone to a future dual listing on other exchanges or as a long-term listing venue.

As of November, 2020, there were over two hundred and seventy foreign companies listed on the ASX. Of these, forty-seven were US based companies, the second largest international pool of listing companies behind New Zealand. The US cohort of companies range across industries but the recent trend has been in the technology sector. The ASX-listed tech sector has more than doubled in the past five years and continues to be Australia’s fastest-growing sector in terms of new listings. The ASX saw one hundred and six new listings in 2018, one hundred and twenty-three in 2017, compared with one hundred and eight new listings in 2016 and one hundred and nine in 2015. The percentage of foreign IPOs on the ASX has been growing steadily from around two point five per cent in 2008 to around twenty-five per cent in 2016, 2017 and 2018.

Good examples of US companies listing in Australia include:

These figures may not tell the whole truth. The ASX uses a sector classification, which employs a relatively narrow definition for technology, meaning that there are also ‘tech’ companies in other sectors. For example, there are approximately forty fintech companies listed on ASX, many of which fall in the financial sector classification. For example, of the forty-six American companies who have listed and raised capital on the ASX. Many, including the likes of Resmed (RMD) (medtech), , Revasum (semiconductors) and Livetiles (software) are technology-driven companies but are classified in sectors other than technology.

In fact, the ASX, in partnership with S&P Dow Jones Indices (S&PDJI), in February of 2020, launched the S&P/ASX All Technology Index (All Tech Index). The new index captures ASX-listed companies in the fast-growing technology sector. The All Tech Index operates under an S&PDJI methodology and at launch will have forty-six constituents with a combined market capitalisation of over $100 billion. In total, there are more than 200 listed technology companies listed on the ASX valued at almost $115 billion. This initiative has reinforced the perception of the ASX as the Junior NASDAQ.

What is driving this trend?

Has Australia, and the ASX in particular, features that are comparatively attractive to US companies or is the case that the US capital market has a number of unattractive features that drives them to look outside their home turf?

Many early stage companies are listed on the ASX. Usually, in the US and other major markets, such young companies are considered as mid-stage or late-stage pre-IPO growth firms, and they seek venture capital as Series B, Series C, Series D, etc.

Size matters. A 2002 study of the reasons US companies list abroad concluded that the primary factor was the size of the company. Companies with revenue of less than US$100 million can attract public market capital in Australia whereas for US companies of this size the only alternatives available are private equity markets with all of their associated pitfalls. The importance of size suggests that the cross-listing decision involves non-negligible fixed costs and economies of scale, this is consistent with the findings of studies of the decision to list in domestic markets,
In addition to size, being a newly privatized company also increases the probability of cross-listing both in Europe and in the United States. This is consistent with the hypothesis that cross-listing is particularly advantageous for firms that need to sell a large number of their shares. In this regard the Australian “sweet-spot” is for global companies with market caps of between A$100 million and A$1 billion.

Within this Australian sweet-spot band of investable company size, antipodean retail investors accept investing in high-risk young firms that are still figuring out their growth-model. The key advantage for investors is that growth companies listed on the ASX, expands the universe of available investing options. In particular, the ASX is a great environment for attracting the attention of media, stock analysts and investors.

Australia’s large fast -growing pension pool, main board listing and earlier entry to globally recognised indices makes ASX the exchange of choice for international companies.

Australia has the fourth largest pension pool globally and also one of the fastest growing. The pool of superannuation (pension) assets is disproportionately large compared to Australia’s population. Superannuation assets currently total A$2.6 trillion and is forecast to grow to over A$10 trillion by the mid-2030s. A significant proportion of this is, and will be invested in ASX listed stocks.

The reason behind the size of the Australian pension pool is the compulsory superannuation system introduced by the Australian Federal Government in 1992. Employers contribute towards superannuation funds on behalf of their employees for their retirement. The current rate is 9.5% with a planned increase to 12% by 2025. Due to the superannuation funds’ structure, much of the capital is invested in Australian listed stocks and companies, making for a very fertile investment ecosystem.

The sheer weight of this pool, where a large percentage is mandated to invest directly in ASX-listed securities, makes the Australian market an attractive venue for international companies looking to access growth capital.

Why List on the Australian Stock Exchange (ASX)?

In addition to capital, an ASX listing offers a number of other benefits for an international company looking at global public markets. These include a highly active exchange, a main board listing and earlier entry to globally recognised indices. Australia is an attractive listing venue for international companies from a number of different markets but these can be broadly characterised by (i) companies located in a constrained home capital market and (ii) those where size can cause them to be lost in their home market.

Companies from large capital markets, such as the United States, also benefit from the Australian market dynamics. The size of the US public markets means that earlier-stage companies, with annual revenues below US$100 million or valued at US$1 billion market capitalisation or less, struggle to foster investor attention.

The US private markets are the most active globally and high-profile companies such as Uber, Spotify and Airbnb have held off listing until they are well beyond that size. This means there is a whole generation of companies that would prefer to access the public markets, versus private funding, at an earlier stage, but their home exchange cannot support this.

ASX is bridging the gap for companies in these larger markets that would like to use the public markets to raise growth capital and can use ASX as a springboard to reach a size where they would attract attention in their home market.

ASX is a very active exchange, typically exceeding 120 initial public offerings (IPOs) a year and trading volumes averaging $5.6 billion on a daily basis.

ASX offers a main board listing, which provides a globally recognised robust regulatory environment and access to the full breadth of investors from retail to global institutions. Access to the main board for earlier-stage growth companies is in contrast to a junior board listing where full access to the investor base can be more limited.

Often, institutional investor mandates stipulate fund managers limit their investment to a globally recognised exchange and not extend to many secondary boards or smaller main boards, examples of which are the AIM market in the UK, TSX-V in Canada, GEM in Hong Kong and Catalist in Singapore.

Index inclusion is another key factor. ASX has three globally recognised S&P indices, the S&P/ASX 300, S&P/ASX 200 and the new S&P/ASX All Technology Index. The importance of index inclusion to a listed company is the access this provides to institutional investment, both passive and active.

Institutional mandates are typically mandated to a recognised index and when a company enters an index it will lead to extended investment reach, both domestic and global, as that index weight increases.

For example, institutional investment in the S&P/ASX 200 index comprises of about forty-five per cent from global asset managers and fifty-five per cent from Australian, meaning companies listed on ASX can have a register of globally recognised investors at an earlier stage than other markets.

What will your next step be?

Australia, and in particular the ASX, has many features that can generate benefits to companies considering and an IPO. BlueMount Capital specialises in bringing US companies to the ASX, and has an office in Los Angeles to service its American clients. Why not contact us and evaluate what we can add to your IPO considerations?

(For further discussion of the reasons listing in the US market may prove unattractive to a company see the first in the series of BlueMount Capital publications, “IPO in the United States? Remember, size matters!”)

Len McDowall
Managing Director
Level 32 200 George St
Sydney 2000 Australia
Telephone +61 2 8277 4112
Email sydney@bluemountcapital.com

Alex Chen
Director and USA representative
1055 W 7th, 33rd Floor, Penthouse
Los Angeles CA 90017 USA
Telephone +1 212 470 6997
Email losangeles@bluemountcapital.com

IPO in the United States? Remember, size matters!

Is your company large enough to IPO in the United States (U.S.)?

You know that when choosing a listing location three things should be considered

(1) the actual out-of-pocket costs for establishing and maintaining the listing;

(2) the effects of a listing location on your company’s valuation and liquidity; and

(3) the non-financial costs and benefits that are available in a particular listing location.

Given that an IPO will often be the most important capital markets and wealth creation event in your corporate life-cycle these considerations should be evaluated very carefully. Unmatched access to capital at a lower cost is a clear benefit of an IPO, along with corporate branding opportunities and a host of other benefits. However, these benefits become insignificant when the analysis that underpins your choice of listing jurisdiction is flawed.

IPOs in the U.S. typically cost significantly more than in other jurisdictions. Legal and accounting fees, printing, brokerage charges to raise the capital, insurances, director fees and other related expenses will be substantially higher in the U.S. than in many other countries. Therefore, it is highly advisable to ensure that a full cost analysis of an IPO listing, in a particular jurisdiction, is completed and then compared with other locations. Our analysis would suggest that the costs and burdens of a U.S. IPO substantially exceed those of other countries.

Have you appreciated the full costs and benefits, including the intangibles, of a U.S. IPO listing as compared with other listing jurisdictions?

The New York Stock Exchange (NYSE) and NASDAQ are the most prestigious stock markets in the world and therefore represent obvious listing targets. However, the competitiveness of the U.S. public markets has been seriously challenged in recent years * in particular:

  • the valuation of U.S. IPOs has increased by more than six times – this significantly increases the valuation threshold you need to reach for the U.S. to be an IPO capital raising option;
  • the age of companies at the time of a U.S. IPO has increased from approximately six-point-five to ten-point-five years – this reflects the length of time companies require to reach an increasingly higher IPO valuation threshold; and
  • the annual number of U.S. IPOs has decreased from approximately 400 to 100 – this is a good indicator of the impact of the rising valuation threshold.

*Source: Dealogic Capital Markets/Capmktsreg.org

So, the U.S. market represents an increasingly shrinking opportunity for the smaller company seeking to IPO. Do you have a valuation greater than U.S one billion dollars? You don’t, then what are your alternatives?

Private equity is the next obvious choice however this is not necessarily the best alternative by which to grow a private company. Private equity funds tend to place lower valuations on their investee companies than the IPO marketplace. They also often impose shorter exit horizons. Moreover, because private equity investors can have different objectives from the founders of investee companies, there is a real possibility of founders losing control of their company. Were you aware that raising capital from the private equity market comes with some significant downside consequences?

Is raising capital from private equity markets really an attractive option for your company?

Because the presence of a strong IPO market permits founders and other entrepreneurs to retain control of a public company post an IPO, and to grow the company with less dilutive public equity, an IPO is still your most attractive route to investment capital. Unfortunately, this choice is increasingly unavailable to smaller companies.
Why is this the case? Underwriters are increasingly uninterested in comparatively smaller capital raises because:

  • many large institutional investors will not consider investments in companies having small post-IPO market valuations;
  • it becomes much more difficult to obtain coverage of the stock by securities analysts when post-IPO market valuations are projected to be low. As a result, there is a very real risk that these stocks will be deemed so-called orphan stocks (i.e. not followed by any securities analysts); and
  • smaller private companies planning an IPO typically have a higher risk threshold than larger companies in a similar position. Accordingly, smaller private companies are more frequently rejected by the largest most prestigious accounting firms for U.S. IPOs.

Therefore, if you are a U.S. private company considering an IPO, with a value of less than US$1 billion you are very likely to be considered to be too small to list successfully in the USA these days. Furthermore, the costs of funding such an IPO listing are simply uneconomic in the USA.

What are your alternatives?

With no easily accessible IPO market in the United States for smaller companies those U.S. private companies wishing to obtain growth capital are forced to seek private equity financing with all of its associated potential pitfalls.

There are however alternatives for US companies, who have a valuation of less than U.S. one billion dollars, wishing to go public, and are prepared to consider jurisdictions outside of the USA. These locations secure the benefits of an IPO capital raising strategy, importantly, with significantly lower costs. The two most promising jurisdictions are the self-contained regions of Europe and Asia-Pacific. In particular, within the high growth Asia-Pacific region, Australia represents an extremely popular choice.

Have you considered these alternative listing jurisdictions? What does your listing cost analysis of alternative listing jurisdictions tell you? Have you discussed your listing options with expert sources who can provide you with a balanced picture of the alternatives available to you? A well-developed business case building exercise should quickly identify that your company size does matter. Moreover, it matters more in some regions of the capital raising world than in others. Your size therefore will be a major influence in determining your IPO strategy including listing location.

About BlueMount Capital

BlueMount Capital specialises in bringing US companies to the ASX, and has an office in Los Angeles to service its American clients

For further information please contact;

Len McDowall
Managing Director
Level 32 200 George St
Sydney 2000 Australia
Telephone +61 2 8277 4112
email sydney@bluemountcapital.com

Alex Chen
Director and USA representative
1055 W 7th, 33rd Floor, Penthouse
Los Angeles CA 90017 USA
Telephone +1 212 470 6997
email losangeles@bluemountcapital.com

BlueMount Capital Opens Los Angeles USA Office – Focus on Listing US Tech Firms on ASX

Sydney, Australia. BlueMount Capital, an ASIC licensed, mid-tier, global investment banking and corporate advisory group headquartered in Australia has today opened an office in Los Angeles and appointed Alex Chen as our representative there.

Alex has over 25 years’ experience in the financial services sector. He has served as CFO for both public and private companies in Australia, Hong Kong, China and the United States and as CEO across a wide spectrum of industries. He specializes in the Pacific Region with a focus in USA IPO’s, where he has significant experience. He is a CPA with a Bachelor of Commerce from Victoria University in Australia and is licensed as a USA investment banker. Alex is bilingual and fluent in English and Mandarin.

The Los Angeles office will specialise in bringing USA companies to list on the ASX.

The ASX offers a very good alternative for USA companies looking to publicly list, as listing in the USA has become difficult for small-medium sized companies as the USA market increasingly favours large-very large companies.

More than 40 US companies have successfully listed on the ASX.

About BlueMount Capital

BlueMount Capital Group is an ASIC licensed, mid-tier, global investment banking and corporate advisory group headquartered in Australia. BlueMount’s team members are highly skilled professionals with global experience and a proven track record in equity and debt financings, M&A, Divestments, MBOs and MBIs, IPOs and RTOs and Cross Border transactions. BlueMount’s key areas of differentiation are its international market connectivity and the ability to perform a broad range of corporate advisory services. Its on- the ground representation in China, North America and Europe give clients the reach of major corporate finance houses with the service, feel and costs of a mid-tier group.

For more details contact:

Alex Chen
alex.chen@bluemountcapital.com
+1 212 470 6997

Len McDowall
len.mcdowall@bluemountcapital.com
+61 418 673 066

BlueMount Capital Group Update on COVID-19

The BlueMount Capital Group advises, in conjunction with the unfolding national and international responses to contain the spread of the virus SARS-CoV-2 and COVID-19 disease, many of our Directors and staff have responsibly chosen to work remotely.

While the current circumstances are unprecedented and likely to remain so for the foreseeable future, the BlueMount Capital Group will continue to provide you with our high level of services in accordance with your requirements. Our remote working procedures will ensure our quality, responsiveness and confidentiality are key priorities. We will also implement procedures to replace face-to-face meetings with teleconferencing and videoconferencing, and in particular, will comply with Federal and State government-imposed requirements.

These steps have been taken to adjust our business in the interests of the health and safety of our people, clients, guests and the general community and to play our part in the efforts to limit the spread of the virus/disease. We know many businesses will also be adjusting their work practices.

We are thankful and appreciative we can continue to operate our business of providing expert investment banking and corporate advisory services, albeit, with some operational adjustments.

Please continue to communicate with us by phone or email or other means in the usual way and let us know if you want to clarify any aspects of our business continuity arrangements.

We are conscious the current circumstances are presenting challenges for all our clients’ businesses.

We remain available to assist you to navigate any issues that arise.

The responses of the Australian and international governments to the spread of SARS-CoV-2 virus and COVID-19 disease are ongoing and changing. We will carefully monitor the situation and update you appropriately.

Social Islami Bank Limited engages Australia-based BlueMount Capital for issuing an international sukuk

Social Islami Bank Limited and Australia based Investment Bank BlueMount Capital signed a Mandate Agreement on 15th March 2020 at the Head Office of SIBL. Under the scope of the Agreement, BlueMount Capital will act as the International Lead Manager in placing an international sukuk for USD 75 million for SIBL within the regulatory framework of Bangladesh. Mr. Quazi Osman Ali, Managing Director & CEO, and other high officials from SlBL were present at the signing ceremony. Local representatives of BlueMount Capital exchanged the Agreement on behalf of their organization.

BlueMount Capital is the International Lead Manager for the issuance of a US$75 million Sukuk by Social Islami Bank Limited (“SIBL” or the “Bank”) in international markets.

The funds raised under the Sukuk will be used by SIBL to comply with the capital adequacy requirements of Basel III and for working capital purposes.

About Social Islami Bank Limited

SIBL is a commercial bank in Bangladesh listed on the Dhaka Stock Exchange. The Bank was founded in 1995 and operates on Shariah Principles. SIBL has more than 3,300 employees and operates 161 branches and 27 sub-branches that are complemented by 115 Agent Banking outlets. The Bank’s mission is to become the Country’s most humanitarian, full-service bank that builds solid, long term business relationships with its customers and helps them with their banking needs. The Bank’s social and economic objectives are to create a caring society and to help eradicate poverty and to empower families.

SIBL has experienced good growth in business with deposits increasing from US$527.7 million in 2010 to $2.92 billion in 2018, whilst investments grew from $431.5 million to $2.8 billion over the same time. The business growth is reflected in growth in operating profits and net profit after tax. The Bank has a Moody’s credit rating of Long Term B1 and Short-Term NP, Stable.