What happens to my Afterpay stock if it moves to the NASDAQ?
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The company may soon follow the lead of fellow Australian tech giant, Atlassian, a NASDAQ listed company with a head office in Australia.
Reports on Afterpay’s plan to list on NASDAQ have actually been circulating for some time, but it was this week’s solid quarterly results that have finally shut the coffin on the likely move.
Afterpay’s Q3 FY21 result showed a 104 per cent increase in underlying sales across all regions.
Most importantly, North America has now become the largest contributor for the company, with the US being the first region to record more than $1 billion in underlying sales in a single month.
On that basis, the move to list in the US seems to make sense – as it will take the company closer to not only its customers, but also some of its biggest institutional investors.
But the plan has left some ASX investors confused about what it would mean for their Afterpay shares.
According to financial advisor, Adam Dawes of Shaw & Partners, who spoke to Stockhead earlier today, current shareholders should not be overly concerned as they would be looked after.
Dawes said that Afterpay, along with its advisor, Goldman Sachs, may pursue one of two routes.
The first option would be to delist itself completely from the ASX, before re-listing on NASDAQ.
The second route is through the conversion of current APT shares to CHESS Depository Interests (CDI), which would allow investors to keep their holdings on the ASX.
Dawes says that either way, current Australian shareholders will not be forced to sell their holdings, as this is not a takeover situation.
Having said that, he believes that there are a few quirks that all investors should be aware of.
“If it gets delisted from the ASX and relist on NASDAQ, the current shareholders will continue to own the company, and they will now automatically get NASDAQ listed stocks,” says Dawes.
The only difference is that Australian shareholders would now get exposure to the US dollar, and hence the currency risk, which they would now have to manage.
“Now you have a currency play, as well as the risk on the stock,” he added.
Investors who elect to keep their stocks on NASDAQ will also have to open an international trading account with their brokers. And this could be tricky for some.
“A lot of investors don’t have an international account, they’re not sure how to do it, and they don’t know how to deal with the complicated taxes in the US,” Dawes said.
It could get even more complicated if the shareholder dies, and their stocks become part of a deceased estate.
“After a while, if the stock becomes a deceased estate, it goes to what is called the State of Delaware, which is basically a holding pot for all unclaimed monies. And trying to get it out of there could be very difficult.”
The most likely scenario, according to experts, is for Afterpay to convert its current stocks into CDIs.
A CDI allows investors to obtain all the economic benefits of having the actual stock, without holding legal title to the stock. And like normal stocks, a CDI is settled electronically through the CHESS system.
The main difference between holding a CDI and the actual stock is that the legal title of ownership is not under your name, but instead will be under a nominee company, the CHESS Depositary Nominees Pty Limited, an ASX entity created on behalf of CDI holders.
And Afterpay won’t be the first company to offer CDIs on its stock. You can already trade CDIs on packaging company Amcor (ASX:AMC), and media giant NewsCorp (ASX:NWS) on the ASX, for example.
But what about the price difference between the CDI and the underlying stock on NASDAQ?
According to Dawes, “there will always be a matching process between the stock price in the US, and the CDI price in Australia”, which would mitigate any arbitrage opportunities that might otherwise arise.
Dawes said that BHP (ASX:BHP) is a classic example where its American Depository Receipt (ADR) price on the NYSE is correlated back to the ASX stock price. ADR works similarly to CDI, where foreign companies in the US can have their main stock listed outside of the country, while maintaining an ADR listing in the US.
Another option for Afterpay, although slim, would be a dual listing in both Australia and the US. ASX stocks that have sought dual listing include small cap MyFiziq (ASX:MYQ), which is currently pursuing plans to list on NASDAQ.
Experts are broadly unanimous when it comes to the prospects of increased valuations for Afterpay stock in the US, given that the company will have improved access to capital.
Access to more funds, including funds with US-only mandates, will expedite growth, as it attempts large-scale expansion in North America. Afterpay’s valuation has often been compared to its US-based rival, Affirm.
However, a recent note out of broker UBS has suggested otherwise. UBS said that it was surprised at Afterpay’s decision to list in the US, given that the “profitability in the US is structurally lower due to high interchange fees”.
The broker believes that Afterpay’s volumes would need to be at least “2.5x higher than ANZ at present, to generate a similar EBITDA contribution”.
UBS also believes that Afterpay’s access to capital in Australia is “more than enough to fund its operations”.
The jury is still out, and no timeline has been announced by Afterpay of its US listing plan.