So, your ASX stock is a Foreign Exempt Entity? Here’s what you need to know?

Some ASX stocks are designated as a Foreign Exempt Entity. Not all overseas domiciled stocks have this status, but all stocks with this designation are foreign and listed on a secondary exchange overseas. They may or may not be listed as CDIs (Chess Depository Instruments) – and usually only are if dual-listed in the USA.

In thie article we recap just what it means if a stock you’ve invested in or are thinking of investing in is a Foreign Exempt Entity. Or even if a company is not but is asking its shareholders to make it one.

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What is a Foreign Exempt Entity?

A ‘Foreign Exempt Listing’ is a listing category on ASX for companies incorporated overseas (i.e., foreign entities) that already have a primary listing on a recognised stock exchange overseas, and which meet certain high eligibility criteria.

The foreign company must be listed on an overseas stock exchange (the so-called home exchange) that ASX accepts and that has regulatory oversight considered acceptable.

Since the company with a Foreign Exempt Listing status is already listed and regulated elsewhere, the ASX listing rules for that company are relaxed — the entity is exempt from many (but not all) of the standard ASX Listing Rules (hence “exempt”) and instead primarily complies with its home exchange’s rules.

Here’s something to note. Eligibility thresholds for admission under the foreign-exempt category are much higher than those for a standard listing (for example in Australia) because this pathway is only for “very large” international companies. Some typical thresholds:

• Operating profit before tax of at least A$200 million each of the last three years; or
• Net tangible assets (NTA) or market capitalisation of at least A$2 billion.

There are lower thresholds to have a Foreign Exempt Listing status specifically for companies incorporated in New Zealand.

Is it a good or bad thing?

Well for the company it is because there is less (typically) less red tape.

What about for investors? Well, sometimes this can be a good thing from an investor perspective (i.e. having to report full results each quarter even if the company is profitable which happens with US companies), but at other times it is bad (i.e. having to convert currencies back to $A because the company may not do so itself).

ASX rules are specifically waived for entities that are a Foreign Exempt Listing. And so investors need to consider the home exchange’s regime (and whether it affords equivalent investor protections) as part of their due diligence. The home country law applies for most (if not all) matters.

It is also important to note that only “large” companies tend to qualify (for non-NZ companies especially) so the Foreign Exempt Listing category tends to be fewer in number and skewed toward large and/or multinational companies.

In one sense that is a good thing in that it means there’s less likelihood of it going belly up, but the other is that there’s little (local) recourse if anything else goes wrong.

What are some examples of companies that are a Foreign Exempt Listing?

Some recent examples include Block (ASX:SQ2) which listed after it snapped up Afterpay as well as Light and Wonder (ASX:LNW). Many others have been listed for longer such as News Corp (ASX:NWS), ResMed (ASX:RMD) and the much maligned James Hardie (ASX:JHX).

Various New Zealand companies are also good example, one of which is Air New Zealand (ASX:AIZ).

Why this is important to know

Obviously so that investors know what they’re getting into. Either when they buy into a stock that is Foreign Exempt Listing, or if a company is changing it retrospectively. Yes companies can do that, one example is Kathmandu (ASX:KMD) which did so in 2019 and Life360 (ASX:360) after it listed in the NASDAQ in 2024.

The bottom line for investors with Foreign Exempt Listing companies (and any for that matter) is: Caveat emperor!