Euroequity

What Is Euroequity?

Euroequity is newly-issued stock that is simultaneously sold to investors in more than one national market, rather than just in the country where the company is domiciled, as part of an initial public offering (IPO).

Euroequity differs from a cross-listing, where company shares are floated in the home market and then listed in a different country.

Understanding Euroequity

Companies in need of funds can raise the necessary capital through debt financing, selling instruments such as bonds, or equity financing — issuing new shares. Equity can be raised not just in a company’s home country but also overseas. When a firm opts to go public and sell its shares in different international markets, it is known as Euroequity.

The Euroequity path is generally taken by companies eager to raise more capital. Options might be limited in its home markets, prompting the company to look further afield and offer investors active in bigger exchanges, such as the New York Stock Exchange (NYSE), the opportunity to purchase a stake in it as well.

Euroequity IPOs are similar to dual-listed IPOs, where a foreign company issues shares simultaneously in its home market and abroad. America has historically been a popular second destination, due to the depths of its capital market and the protection the Securities and Exchange Commission’s (SEC) regulations provide investors.

As well as granting access to a bigger pool of investors and capital, listing on multiple exchanges can also help to increase brand awareness. 

Example of Euroequity

As a historical example, in 1995, Investcorp, a holding company controlled by Bahraini investors, sold 49% of its stake in Gucci Group, the Italian luxury goods maker, in an IPO on the Amsterdam (AEX) and New York Stock Exchanges. In 1996 it sold its remaining 51% stake.

The move initially worked out nicely for Gucci. By early 1999, the Italian fashion brand doubled the number of stores it owned and operated. New stores and upgrades on existing ones boosted revenues and helped the group to put its early 1990s flirtation with bankruptcy firmly in the rear-view mirror.

Disadvantages of Euroequity

There are plenty of benefits to Euroequity IPOs, as well as several negatives. Drawbacks include having to comply with multiple regulatory bodies and exchanges and synchronizing disclosures — hurdles that can come at a substantial cost.

The Sarbanes-Oxley Act was enacted in 2002 to restore investors' confidence in the financial markets after the Enron Corp. and WorldCom accounting scandals. But it increased the costs of financial reporting, and established whistle-blowing mechanisms which came into conflict with European Union (EU) data and privacy legislation. 

As a result, large foreign issuers, such as car manufacturer Porsche, abandoned their plans to list on U.S. exchanges. Like the thousands of American companies that have since gone private, many prominent foreign multinationals, including fashion group Gucci, withdrew from the U.S. market, too.

One of the latest to withdraw is BT Group plc. The British telecom giant said it plans to delist from the NYSE because of high reporting costs and complexity. One-fifth of BT's issued shares are held by U.S. investors.

The number of U.S. listed stocks has been declining since the mid-1990s — at present, there are about 4,000 public companies, half the amount there were in 1996.