Benefits of International Stock Exchange Listings For Natural Resources Companies in Africa

Without a doubt, an international stock exchange connects buyers and sellers globally, facilitating the acquisition and disposition of shares. The stock market is anticipated to accelerate economic growth by increasing both the quantity and quality of investment. Savings are likely to increase due to the stock market’s ability to provide natural resource businesses with a different financial instrument that meets their risk preferences and liquidity requirements. Stock exchanges also provide a more cost-effective means of raising funds for rising natural resource corporations. Stock markets encourage savings among natural resource businesses while also offering routes for funding, and they can have a favorable impact on economic growth. When a situation arises in which a company is unclear of the standards for listing on an international stock exchange, our organization can assist enterprises looking to go public on the stock market by providing counsel and assistance.

Challenges facing natural resources firms in Africa

Africa’s natural resource industries face substantial funding hurdles. Discoveries of new natural resources — such as oil, minerals, and gas — give a new source of cash for developing human progress and supporting countries on their journey to self-sufficiency. However, this is not the situation in most African countries, owing to a lack of accessible financing.

Most of Africa’s natural resource businesses have openly stated their intention to use newly generated revenue to support social and economic development by creating new and better employment and business opportunities. However, some of these firms are having trouble growing investments to the appropriate level due to a lack of platforms like financely-group.com that could bridge the gap between natural resource corporations and their inclusion on the international stock exchange.

Conciliating investments with societal responsibilities such as corporate social responsibility, transparency, and carefully managing customer expectations has proven extremely difficult for natural resource businesses.

What are the benefits of being listed on foreign stock exchanges?

Previously, only international corporations took this issue seriously. Major, medium-sized, and even small enterprises are now assessing the benefits and drawbacks of foreign listing.

• Financial advantages

Local demand for additional shares may be particularly inflexible in nations with limited or fragmented capital markets. As a result, increasing the number of claims will have a detrimental effect on the price, hence increasing the cost of capital. However, one significant benefit of listing on a foreign stock exchange is lower capital costs.

• Marketing and Public Relations Benefits

A foreign listing can assist a business’s marketing efforts by improving brand awareness among foreign investors and customers. Foreign investors’ ownership of shares stimulates local demand for knowledge about a firm’s goods and performance. The listing process itself can assist develop relationships with the local financial sector through meetings with investment bankers, brokers, exchange officials, and regulatory agencies.

• Political Advantages

Numerous governments have enacted legislation regulating local ownership of businesses operating under their jurisdictions. While collaborative ventures are sometimes possible, they may require technology sharing with overseas partners. In certain instances, listing on an international market enables a business to meet specified standards. Local individuals and institutions owning shares may also help build political support and mitigate any detrimental nationalistic attitudes.

• Employee Engagement Advantage

In recent years, employee stock ownership programs have gained favor as deterrence against hostile takeovers. At the very least, stock ownership balances employee and shareholder interests. Enhancements to benefits like stock purchase, bonus, and option plans are possible if employees, particularly those working in foreign countries, can trade their shares on a local exchange.

What is the cost of listing on a foreign exchange?

Accounting and disclosure requirements are the most significant expense connected with most firms’ foreign listings due to country-specific accounting and auditing processes, financial reporting, and regulatory and legal limits. Most stock exchanges impose initial and annual renewal fees proportional to the number of shares listed and traded. Thus, the expenditures of a specific firm will vary depending on its location and currency.

REVERSE MERGER

A reverse merger (“RM”) is a unique approach to public offering in which a private operational firm searches out and merges with a suitable non-functioning public company (or a newly-formed subsidiary of the public company). The Securities and Exchange Commission requires that firms seeking to be listed specified criteria and demonstrate a commitment to keeping the investing public informed about their operations.

The publicly traded firm

The public corporation may be the relic of a bankrupt or sold organization or have been explicitly founded to invest in a private company. In each case, the fundamental strategy is the same: the private firm acquires control of a publicly-traded company, merges with it, and then becomes a publicly traded corporation in its own right.

Why is it referred to as a reverse merger?

It is referred to as a “reverse” merger due to the rarity of a private corporation acquiring a public company.

What are the two sorts of businesses involved in a reverse merger?

• Defunct company

A defunct company has gone public via an initial public offering (IPO) but has exited its market, becoming dormant. These companies have ceased operations, although they once did.

• Shell company

A shell company is a corporation that has not been registered with the Securities and Exchange Commission. As opposed to defunct corporations, Shell businesses are primarily used to bring a privately held firm into the public realm by a merger with another privately held corporation, which is the primary aim of shell companies. However, a defunct corporation was formed with the primary goal of functioning as a going public vehicle through the merger with an existing privately held corporation. These firms are frequently referred to as SPACs (Special Purpose Acquisition Corporation). Financely-group.com offers a wealth of experience in assisting companies with a wide range of capital raising alternatives, including bond issues, initial public offerings, and special purpose acquisition companies (SPACs).

What is the rationale for pursuing a reverse merger?

The reverse merger’s purpose is to transform a privately owned company into the successor to a publicly traded corporation that was previously profitable. This objective is accomplished by a stock swap in which a private company acquires a public firm, and the private company’s shareholders take control of the public company. Additionally, the shareholders of a private firm can alter the public company’s name and abolish its board of directors.

Is a reverse merger beneficial?

A reverse merger is advantageous because it offers managers of private companies an attractive strategic option for achieving public company status; it is also less time-consuming and less expensive.

What are the advantages of reverse mergers?

• Capital Access

Investing in public firms has many benefits. First, public companies regularly and thoroughly report financial data to the Securities and Exchange Commission and the public. Investors trust public corporations because they cannot hide issues. The second benefit is the increased ease of generating liquidity. Public companies can raise more capital than private companies. Investors prefer public companies because of the ease of obtaining financing after the Initial Public Offer. Private equity investors are always looking for companies willing to sell or go public. Exiting a publicly-traded company is much simpler. Stocks of public companies are worth nearly twice as much as equivalent private stocks.

• Liquidity

Liquidity enables all investors to improve their exit plans by converting their capital to cash. Not only new investors desire the ability to exit. Occasionally, one of the primary reasons for taking a private company public is to allow founders, previous investors, and top executives with stock interests to exit the business without selling it altogether or relinquishing actual control.

• Strategic alliances

The most common reason for going public is to pursue a growth strategy through acquisition, joint venture, or strategic partnership. Investors are more inclined to lend money to a public company, even if the loan is used to fund acquisitions. Additionally, a public corporation can frequently include shares as cash or “scrip” in the consideration packages. Occasionally, the sole concern is stock.

• Stock Options for Executives

Numerous businesses face difficulty attracting senior executives with vital track records. Public organizations have the edge over private corporations in attracting top executives because they can incorporate stock options and other equity-based pay in their compensation packages — the reason for being associated with a public company. Excessive executive compensation is typically perceived to be the norm for public firms. However, it is frequently revealed in the terms and conditions that the large majority of a multimillion-dollar compensation package comprises stock or stock options rather than salary.

• Confidence in the organization

As a result of the Securities and Exchange Commission’s disclosure standards, shareholders in publicly traded companies have more confidence in the openness of management’s activities and the company’s operation. The Securities and Exchange Commission requires reporting corporations to consistently disclose financial data, executive compensation, related party transactions, significant contracts, liquidity, and capital resources. As required by SEC regulations, public companies must generate this continuous stream of information to educate shareholders about the company’s actions and challenges. As a result of the Securities and Exchange Commission’s disclosure standards, shareholders in publicly traded companies have more confidence in the openness of management’s activities and the company’s operation.

The Negatives of Reverse Mergers

• Regulatory burden

The initial effort to comply with multiple standards may result in a stagnant and failing organization if management devotes much more time to administrative obligations than running the business. In other cases, organizations may be unprepared for the increased regulatory and compliance duties of being an actively traded company, which is one of the downsides of becoming public. These duties (as well as the resulting time and financial expenses) can be highly time-consuming and costly. Private firm management might collaborate with investors in the public company who have prior experience serving as officers and directors of a public company. Additionally, the CEO may engage personnel (or external consultants) with relevant compliance experience. Managers should ensure that their organization has the administrative infrastructure, resources, road map, and cultural discipline to comply with these new requirements following a reverse merger.

• Investigation Time

Managers of public firms are expected to conduct thorough research on the investors in public companies. What was the driving force behind their decision to merge? Have they performed all necessary due diligence to ensure that the operation is clean? Currently pending obligations or other “transaction difficulties” pursuing the public corporation. It is essential to examine public corporations with prudence regarding their management, investors, operations, financial statements, and any pending commitments (i.e., litigation, environmental problems, safety hazards, and labor issues).

• Unloading Volatile Stock

If investors in a public company sell a large proportion of their shares immediately after the merger, this can dramatically negatively influence the stock price. A merger agreement may include provisions requiring required holding periods to limit or eliminate the possibility of stock being dumped.

• Inadequate Post-Merger Share Demand

Will the investors of a private firm genuinely obtain adequate liquidity following a reverse merger? Smaller firms may lack the financial resources necessary to go public. There may be a lack of operational and economic scale. Following the reverse merger, the original investors’ shares may become scarce. Reverse mergers do not negate the importance of solid fundamentals. A business’s shares must be profitable operationally and financially to target potential investors.

What occurs following the completion of a reverse merger?

Following the merger, the operating business’s shareholders obtain a majority stake in the public company, governed by the former active firm’s shareholders. The public company’s name is changed to that of the operating company, its directors and officers are replaced, and its shares continue to trade on the same stock exchange as before. Thus, the operational firm’s business continues to be managed and controlled by the same group of owners, directors, and officers, but it has been reformed as a public corporation. In effect, the operating firm has been elevated to the level of a public company and is now publicly traded.

How does a reverse merger work?

The procedure is as follows:

1. Public-private information interchange

2. Merger contract negotiations

3. Completing a share exchange arrangement.

4. The public firm transfers a majority of its shares and control of the board to private investors.

5. Transferring their private company shares to their newly-controlled public company.

6. The reverse takeover is now accomplished.