Dual Listing – Why is NIO going down this road? May 19, 2022

Background

Electric cars are now the rage. So, any announcement about the sector makes big news. Unsurprisingly, the recent reports about NIO Inc going for a dual listing in Singapore has garnered a lot of attention.

NIO, headquartered in Shanghai, is a multinational automobile manufacturer founded in November 2014 that specialises in designing, developing and jointly manufacturing smart electric vehicles.

Among the established companies that focus on EVs are Audi, Bentley and BMW, but there are also new companies such as Canoo, Byton and Rivian¹.

But what differentiates NIO from the others is its involvement in battery swapping technology; Backend-as-a-Service (BaaS: a cloud service model where developers outsource backend functions of a web or mobile application) and Application Delivery as a Service (ADaaS: web-delivered services that provide application functionality to users). Now, with all this under its belt, NIO is regarded as one of the most prominent brands in the EV industry².

Dual listing

What is dual listing? On 11 May 2022, NIO Inc (NYSE: NIO; HKEX: 9866) announced that it had proposed its Class A ordinary shares, par value USD0.00025 per share, to be listed on the Main Board of the Singapore Exchange Securities Trading Limited (SGX-ST) and for trading to commence from 20 May 2022, after the company had received the eligibility-to-list letter (ETL) from the SGX-ST regarding its proposed secondary listing by way of introduction on the Main Board of the SGX-ST (the “Proposed Secondary Listing”).

The SGX-ST has provided NIO with conditional eligibility and once the Singapore listing moves forward, NIO shares will be fully fungible with its ADR (American depositary receipt) shares.

NIO also said that Credit Suisse (Singapore) Limited and Goldman Sachs (Singapore) Pte. are acting as joint issue managers, and PrimePartners Corporate Finance Pte. Ltd is acting as the financial adviser, for the Proposed Secondary Listing³.

Nio, listed on the New York Stock Exchange, carried out a secondary listing in Hong Kong in March 2022, and with its new Singapore venture, SGX-ST will be the third exchange that has NIO’s shares trading on it.

Performance

So how is NIO doing now? NIO has not been immune to global inflationary pressures and interest rate rises. And its shares are trading at USD13.1 (as of 13 May 2022), which is a significant drop from USD62 at the start of 2021⁴.

One of the reasons for NIO’s showing is the strict lockdown in Shanghai imposed since late March 2022 due to the surge in COVID-19 cases.

The lockdown caused supply chain disruptions which forced NIO to suspend the production of its vehicles since the start of April 2022, and lower levels of production could affect annual revenues.

Now, let us deal with the delisting and why it is happening.

One of the main reasons is that the United States announced the delisting of Chinese stocks which do not comply with US auditing laws.

The US Securities and Exchange Commission (SEC)’s latest list of 80 companies potentially being removed from its exchanges includes NIO, which caused the company’s shares to crash a further 15%⁵.

So, NIO’s proposal for a secondary listing on the main board of the Singapore Exchange as well as its listing in HK is an attempt to hedge any delisting from the US.

Morgan Stanley’s Research Analyst Tim Hsiao stated that he believes NIO’s secondary HK listing will be converted to its primary listing within a year, and suggests that the SG listing would be able to assist the company in gaining more traction by broadening its investor base⁶.

As for NIO’s recent performance, the EV automaker reported that sales declined by 49% month-over-month to 5074 units in April, equating to a 29% year-over-year drop. And as for its immediate prospects, Hsiao says one should keep an eye on the ET7 model, which would potentially be receiving a face-lift⁷.

With regard to how investors should view the stock, analysts are largely positive on the company due to the upcoming dual listing and its future plans.

Hsiao has an Overweight rating for NIO and expects a USD34 price target, amounting to a 121% increase from current levels. Wall Street analysts from TipRanks has a USD40.51 price target representing one-year gains of 163%⁸.

Dual listing

So, what does dual listing entail? Dual listing occurs when a certain security lists its stock on more than one exchange.

A dual-listed company, referred to as DLC, consists of more than one legally registered corporation operating a single business. Companies that are listed on more than one exchange have to fully comply with the respective legal and listing requirements of all the countries/exchanges that their stocks are listed in. Complying with the regulations of only one of the countries or exchanges will not suffice.

Prominent companies which have dual listed include:

– Unilever (listed in the UK and the Netherlands)
– BHP Billiton (listed in Australia and the UK)
– Rio Tinto (listed in Australia and the UK)
– Investec (listed in South Africa and the UK)
– Brambles (listed in Australia and the UK)⁹

How does dual listing help?

• Companies that are dual listed are able to access a larger capital base, increasing exposure to more investors which creates an opportunity to raise more capital.
• Dual listing brings about greater liquidity of a traded stock particularly because it allows a larger number of participants to conduct the buying and selling of the stock; reducing the bid-ask spread
• If a company is dual listed on exchanges with different time zones, this allows for an extended amount of time for trading on multiple markets, allowing more participants to trade more in a 24-hour period¹⁰
• The dual listing strategy may also result in heightened consumer awareness as more awareness of a company among investors could draw more consumers towards the business and in part, increasing sales¹¹

Potential problems

• High listing fees and associated costs: The listing of a stock on either major US stock exchange could cost around USD50 000. But this is a relatively small amount as compared to the millions in additional capital that a company could gain from dual listing. Also, there would be additional accounting costs and reporting needs
• In order for a company to be listed on a new stock exchange, there are more requirements to communicate with investors as corporate officials are needed to present to investment banks and individual investors, and this could require a lot of time and effort
• As mentioned before, dual listing requires a company to meet listing requirements and accounting regulations of all the countries and exchanges that they are listed in. This leads to hiring salaried professionals to manage the way around and ensure that the company is in compliance with them¹².

Conclusion

Dual listing may be expensive and a business will incur additional costs and listing fees, as well as demanding a significant amount of time and effort from business professionals to ensure that the company meets regulations. However, the amount of additional capital that could be generated from the strategy trumps the negative aspects of the move.

ETFs is another way to gain exposure to NIO. If that is what you want, check out the ETFs below.

Visit: https://www.poems.com.sg/etf-screener/

The PhillipCapital’s Share Builders Plan allows investors to buy ETFs on a monthly basis. To find out more, visit: https://www.poems.com.sg/faq/general/information-sheets/share-builders-plan-sbp/

For equities, the board lot size for NIO Inc SGX-ST listed shares is 10. To invest in NIO Inc, visit: https://www.poems.com.sg/

Reference:

• ^[1]https://www.caranddriver.com/news/g29994375/future-electric-cars-trucks
• ^[2]https://ir.nio.com/governance/company-profile
• ^[3]https://ir.nio.com/news-events/news-releases/news-release-details/nio-inc-announces-expected-listing-date-its-proposed
• ^[4]https://www.fool.co.uk/2022/05/09/after-falling-over-75-can-nio-stock-double-in-value/
• ^[5]https://finance.yahoo.com/news/nio-dual-listings-hedge-against-080245112.html
• ^[6]https://finance.yahoo.com/news/nio-dual-listings-hedge-against-080245112.html
• ^[7]https://finance.yahoo.com/news/nio-dual-listings-hedge-against-080245112.html
• ^[8]https://finance.yahoo.com/news/nio-dual-listings-hedge-against-080245112.html
• ^[9]https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/dual-listing/
• ^[10]https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/dual-listing/
• ^[11]https://www.thebalance.com/what-is-dual-listing-5219877
• ^[12]https://www.thebalance.com/what-is-dual-listing-5219877

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