Pros and Cons of Redomiciling vs. Cross-Listing

Going public is a key step in a company's lifecycle that provides broader access to more capital. However, sometimes it becomes necessary to look beyond your nation's borders for additional sources of capital, and there are different ways to do that. Redomiciling, dual listing and cross-listing all provide access to foreign stock markets, but the advantages of each differ.

The terms "dual listing" and "cross-listing" are often used interchangeably, and you'll get completely different explanations of the differences between these two terms on virtually every website you look at. 

However, while both terms do describe the same scenario, meaning that a company lists its stock on multiple exchanges, there is one meaningful difference. The technical difference is that cross-listing involves the same shares of the same company being listed on different exchanges, while dual listings involve two separate companies functioning as one with their stocks listed on two different exchanges.

As such, dual listings and cross-listing both provide access to foreign capital markets — without exiting your home market. On the other hand, redomiciling involves actually moving a company's base of operations to another country entirely rather than merely listing its shares on a foreign stock exchange.

Of course, uprooting your company entirely is more than a mere change of address. It’s a major earth-shattering change, but it's the right move for some companies. Here's what you need to know about redomiciling versus simply dual listing or cross-listing.

The basics of dual listings and cross-listing

The short explanation is that dual listing or cross-listing results in listings on two or more stock exchanges. On the other hand, redomiciling involves moving the domicile, or home country, of a company to the other country, which also enables it to switch from one country's stock exchange to another.

One example of a company that has cross-listed is U.K.-based Unilever, which was listed in London (ULVR) and then cross-listed in Amsterdam (UNA), with a third ADR listing in the U.S. (UL). However, American Depository Receipt shares are not actual shares.

Instead, they're certificates issued by a bank that represent a foreign company's stock and can trade on an exchange without the company actually being registered on that exchange. Of course, being able to trade on a foreign exchange without actually having to register on it offers clear benefits for companies, but those advantages are beyond the scope of this article.

On the other hand, cross-listed companies still have to meet the same requirements as any other stock trading on the exchange they want to trade on, which typically include various regulatory and accounting requirements, among others. Additionally, cross-listed companies must abide by all the regulations established by each stock exchange on which they are listed.

“Foreign companies that desire to leverage the U.S. capital markets need to evaluate the level of engagement and thus commitment to our regulations, which are amongst the most stringent worldwide, that they are willing to undertake,” explained Louis Taubman, a partner at the law firm Hunter, Taubman Fischer & Li, LLC. “There is no right or wrong answer in this regard. It is really a matter of balancing the needs of each individual company and its shareholders with the costs and benefits of the options (i.e., dual and cross-listing or redomiciling) available."

Why would a company redomicile instead?

Of course, cross-listing on other exchanges can be expensive, requiring listing fees, legal and accounting fees, and other expenses to complete the other listing. However, it also boosts the company's liquidity, provides access to investor capital in another part of the world, and increases the number of hours in a day during which its stock is traded.

However, a company may want to redomicile instead for various reasons. For example, some companies move their operations to a new locale with larger, more liquid capital markets than what's available in the country in which they were founded.

Financial hubs like the U.S., Toronto, London and Hong Kong may make more capital available to companies than smaller markets. Additionally, the cost of equity capital may be lower in these larger markets than in smaller ones.

“Redomiciling to a U.S. exchange is a natural progression for any venture exchange companies, especially those listed in Canada,” said Alyss Barry, co-founder and principal at IRLabs. “Redomiciling to the U.S. opens the door to a larger pool of liquidity, providing issuers with an opportunity for growth. We’re seeing it already — many Canadian-listed companies are developing their ‘roadmap to the U.S.’ as part of their capital markets strategy.”

A change of domicile can also make it possible for a company to be added to a major index like the Nasdaq Composite, depending on other factors that dictate whether they can be included in any of those indexes. Changing locales can also facilitate mergers and acquisitions or make corporate structuring simpler in cases in which companies have more revenue from international markets.

Redomiciling can also provide subtler benefits, like moving a company into a market where there are more comparable peers in the same venue. Companies with more peers to compare themselves to in the same market may be able to achieve a higher valuation, depending on various factors.

Case studies in redomiciling

Of course, the decision of whether to cross-list or redomicile entirely is the better option differs widely from one company to another. Both require significant expense, although redomiciling tends to be more expensive because it requires relocating operations as well as fulfilling all the legal and regulatory requirements of such a transaction.

“While cost considerations are significant — with D&O insurance alone potentially surging by two, three or even four times due to a more litigious environment — timing is everything,” Barry added. “Do you have a few good quarters under your belt? Are you capitalized? Are you equipped to weather external factors that may impact your industry or the broader markets?”

However, for many companies of all kinds, the benefits from either option have been well worth the expense. One company that redomiciled recently was Incannex Healthcare (IXHL). In its press releases announcing the transaction, Incannex management discussed several benefits they expected from redomiciling from Australia to the U.S.

The company announced that the transaction was completed in late November. After the shift, the company is now subject to the rules and regulations of the U.S. Securities and Exchange Commission and the Nasdaq rather than Australian regulators and authorities.

Among the benefits Incannex management highlighted was greater access to a capital market they considered to be "more cognizant" of the company's "value proposition, with peer comparison companies trading at significantly higher market valuations."

They also anticipated improved access to large pools of lower-cost equity capital over the long term, increased alignment with prominent pharmaceutical companies, a simplified corporate structure, and enhanced access to the resources of the U.S. Food and Drug Administration.

"It is a decision made with the intention to maximize shareholder value," Incannex Healthcare CEO and Managing Director Joel Latham said in a statement. "Incannex has matured on the ASX to the point that it has a large and diversified drug portfolio with two exciting drug candidates imminently entering pivotal clinical trials. By committing our presence to the United States, we believe that our company's visibility to international investors will increase markedly, partly due to our value proposition compared to similar emerging biotech companies with a presence in North America."

More recently, FREYR Battery (FREY) received shareholder approval to redomicile from Luxembourg to the U.S. in December, with plans to complete the transaction by the end of the year. FREYR management also shared some key benefits of moving to the U.S., with the goal of enhancing shareholder value over the long term.

They said moving to the U.S. would enable the company to simplify its corporate structure and streamline its reporting requirements, which will facilitate efforts to "assess, implement and remain in compliance with multiple regulatory and reporting requirements."

Other expected benefits include operational efficiencies, greater financial flexibility, and possible eligibility for inclusion in equity indexes, which would trigger benchmarking from actively managed funds. FREYR Battery is currently constructing a battery factory in Georgia, so redomiciling to the U.S. makes sense for that reason as well.

"With Giga America under initial development in Coweta County, Georgia, we are now positioned to establish FREYR as the first U.S.-based scaling partner of choice for battery technology solutions," said FREYR Executive Chairperson Tom Einar Jensen in a statement.

The unique PR/ IR needs of redomiciled companies

Redomiciling from one country to another not only requires careful planning on the physical move and related issues but also very specific public relations and investor relations needs.

Shareholders must be kept up to date on all the latest developments around the relocation, and the company may want to contract with a public relations firm that specializes in publicly traded and redomiciled companies in the new market. 

Finally, companies redomiciling to new markets will need to consider increased marketing and PR budgets because they will need to establish both a brand reputation and an investor base in their new market.

Ari Zoldan is CEO of Quantum Media Group, LLC, and Incannex Healthcare is a client of Quantum Media Group.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.