The great distance is apparently no deterrent; many Israeli companies are still taking an interest in being listed on the Australian Securities Exchange (ASX). 17 Israeli companies in various technological spheres are already ASX-listed. They could have gotten themselves listed on the TASE, but they preferred Australia.
What is ASX's secret? "We have no secrets," laughs ASX listings general manager Max Cunningham, but he nevertheless points out several reasons to "Globes." "In Australia, we have had a compulsory pension plan since 1991, so there are a lot of savings that can be invested on the stock exchange, and our economic growth is good. In my opinion, the most important thing is that our stock exchange is a leading trading arena with stringent corporate governance requirements. In contrast to other markets, we have no secondary index." Cunningham adds that Israel is one of only five markets from which companies can be listed directly for trading in Australia, rather than through CHESS Deposit Interests (CDIs) (analogous to American Depository Receipts (ADRs) in the US), a paper that tracks an existing security.
Cunningham finds another reason in Australian history for the attraction of investments in technology companies for local investors. "We Australians have already been funding startups for a century. It's true that for 90 of those 100 years, the companies involved were mining companies; only after that came the successful transition to high tech, although there were also some high-tech companies that came to the ASX relatively early. Keep in mind that companies with a market cap of $250-350 million make it to the leading indices, which are global indices," he says.
"Globes": What recommendations can you give for the Tel Aviv Stock Exchange, which is trying to attract technology offerings?
Cunningham: "The entire market here is different. We have the greatest appreciation for the stock exchange in Tel Aviv and have met with its management a number of times. Stock exchanges can compete to list companies, but they all have similar issues pertaining to technology, attracting capital, and so forth. We regard them as good friends."
Who are your main competitors?
"Where Israel is concerned, competition (for listing Israeli companies for trading, S. H.-V.) comes from the SGX stock exchange in Hong Kong, the stock exchange in Toronto, and the AIM exchange in London. We don't regard Nasdaq and the New York Stock Exchange as competitors, because they play in a different market and they target larger companies. Maybe we'll compete with them one day, and that will be a nice problem."
Cunningham believes that the right time for companies to go public on the ASX is after two private financing rounds. "When they get to the third round, the company is usually at a point where its intellectual property is already proven and it wants to recruit salespeople. Then it discovers that the terms that the venture capital funds are offering it aren't always attractive. It may go for those terms, but we think that this is the point at which a talk with the ASX is worthwhile," he says. "This is the stage at which we see a lot of interest in high-tech companies - as an alternative to a third financing round.
"Companies hold an IPO only once, so they have to make sure that the timing is right. It's important to keep in mind that there is also disadvantages: the biggest is the time. You have a responsibility to your shareholders. You have to connect with them, give them reports, comply with the stock exchange rules, and undergo examination by the regulator. All of this is worth time, and that's a very dear resource for entrepreneurs."
Cunningham adds, "We spend more time in telling companies, 'Don't be listed for trading; it's too early' than in persuading companies to become listed. It's very easy for us to attract companies for trading, but we prefer to create a market suitable for investment. We have a very diverse market in Australia, with a lot of retail investors and pension savings. One area that's growing a lot is family office passive investments. We tell companies that when they become public companies, it's worthwhile attracting all types of investors. If they register for trading too early and the company is too small, it relies primarily on retail investors, especially day traders. They're good when the situation is good, but when things aren't good, they're not there, and liquidity vanishes. If they are your sole source of financing, you have no reason to be listed on the stock exchange."
"Priority for an IPO, not a merger with a stock exchange shell"
Cunningham is visiting Israel with other senior ASX officeholders. The visit is part of their effort to encourage Israeli companies to register for trading on the ASX. In addition, the visit included meetings at open innovation platform SOSA, which is helping then implement their policy by locating and connecting with innovative technologies in Israel and worldwide through its centers in Israel and New York. "We want to show Australian investors the good things here," he says. "We brought fund managers from Australia and we're showing them companies listed on our exchange, companies about to hold offerings, and those thinking about being registered in Australia."
Which companies are likely to be suitable for listing on the ASX?
"Software as a service is a sector that investors understand well. Cybersecurity is popular, and investors also like satellite, which is a very large market historically on the ASX, as is agritech. New Zealand is a very large source of foreign companies traded in Australia, and a lot of them come from agritech. This background helped a lot in the successful launch by Fluence, a Caesarea-based company."
In a more general context, Cunningham says that investors in Australia are going back to mining shares: "The mining industry is making the biggest comeback of the past decade. The financial services sector also interests investors; there are several planned offerings in the pipeline. Another interesting sector is health, because the population is aging."
Are you satisfied with the type of Israeli companies listed on the ASX?
"We have very good connections with them. It's not for us to say whether or not a company is good; we want companies with a well-calculated business model that investors can understand, with proper corporate governance, and we're especially interested in diversity. There's no high-tech market growing very much in Australia, but it has been the fastest-growing part of our capital market in recent years. Most of the high-tech companies listed on the ASX are still local ones, and what we really want is global high tech. What's attractive about companies from Israel is that everyone who starts a company in Israel builds it for the purpose of appealing to the global market and growing. Australia is very eager to learn from Israel and share the Israeli story. We'll help fund Israeli technology and we'll be able to benefit from it and share in some of its achievements through the share price."
While Israeli companies formerly registered for trading in Australia through a merger with a local stock exchange shell, the trend has changed; the companies that arrived recently did so through IPOs. It appears that Cunningham has no doubt that this is the best way. "Usually, when a new market opens and companies are considering whether or not to enter the market, there's something promoting stock exchange shells, or as they're called in Australia, 'back doors.' A stock exchange shell usually has a little money, so that only a little more has to be raised. It looks attractive, but there's a disadvantage. Local investors don't like them, because they think, 'Why are you doing this? It's not clean like an IPO.' It's a matter of attitude. Some investors say, 'Back doors? We're not investing.' Why should a company want to give up on them as investors?
"Another point is that a merger with a stock exchange shell is promoted as an easy way because the company is already listed for trading, but it's not easy. You have to deal with many parties at interest," Cunningham adds. "As a stock exchange, it brought us several interesting Israeli companies, some of which succeeded, and we welcome that. But I think that were they to do it over, they would hold IPOs. The laws are the same, there aren't any concessions for stock exchange shells, so why not come 'clean?'"
Activity: Stock exchange
Year of founding: 1987 (following a merger of six local stock exchanges in Australia)
Prominent sectors: Metals and mining - 651 companies listed; finances - 241; technology - 232
Foreign companies listed: 275, including 56 from New Zealand, 17 from Israel, and 17 from Singapore
Number of IPOs in 2017: 143
Published by Globes [online], Israel business news - www.globes-online.com - on May 6, 2018
© Copyright of Globes Publisher Itonut (1983) Ltd. 2018