INBU 4200 Lecture 9.ppt

INBU 4200: Lecture 9 Sourcing Globally: Equity Financing Objectives for Lecture 9 Designing a strategy to source equity globally Analyze the motivations and goals of a firm issuing new equity shares on foreign equity markets Recognize the many barriers to penetrate effectively foreign equity markets through cross-listing and selling equity abroad Identify the various financial instruments which can be used to source equity in the global equity markets Review major stock exchanges outside of the United States: London, Tokyo, Continental Europe (Frankfurt and Euronext) Strategy for Sourcing Equity Globally Observations: Most firms sources equity locally within their own domestic markets. Most firms are unknown in global markets. Move into international bond markets combined with cross listing of outstanding equity shares to gain recognition. Test equity offering in smaller markets. Eventually, list and offer in target equity market. London Stock Exchange or NYSE Cross Listing of Shares Definition: The listing of shares of stock on two or more stock exchanges. Cross border in nature. NYSE and London; NYSE and Tokyo! There are fees involved. There are disclosure requirements involved. How can shares be listed? Actual shares or depository receipts. Cross Listing on the TSE Foreign Listing Requirements in Japan Minimum number of share to be listed Depends upon average price (on home exchange). Varies from 20 million shares (average price less than ￥500) to 20,000 (average price ￥100,000 or more)! Market capitalization of listed shares and time of incorporation of company At least ￥2 billion; at least 3 years since incorporation. Financial statements to be provided Minimum 2 years, audited independently Initial listing fees: Examination fee: ￥1 million Fixed fee: ￥2.5 million Annual listing fee: ￥0.0225 x number of shares listed (to a maximum of ￥13.5 million) Possible Reasons for Cross Listing By cross-listing and selling its shares on a foreign stock exchange a fi