Britain remains one of the best places in the world to access debt and equity markets and is placed in an enviable time zone to coordinate international business.
The UK Department for Business, Innovation and Skills (BIS) and the London Stock Exchange (LSE) want London to maintain its attractions and be one of the best places in the world to start, run and grow a business. Accordingly, BIS and LSE are working together to deliver ambitious proposal designed to attract entrepreneurs and high-growth companies to the UK and to the London markets.
IPOs for high value and high growth businesses
BIS and the LSE have announced that they will take bold action to open up London’s equity markets to new high growth companies, particularly from elsewhere within the European Union. The cornerstone for these proposals will be a new route to IPO for companies seeking a Premium Listing on the Main Market.
The objective is to attract mid-sized high growth and capital intensive internet and technology companies, companies which need to raise new equity funds as soon as possible in order to deliver swift business growth.
Companies of this size are not the usual currency of AIM, the LSE’s market for smaller growing companies and the most successful growth market in the world.
Encouragement of equity
In another positive step, the Government has committed to look to the rules which may be deterring investment into growth companies: the significant cost discrimination of equity when compared with debt must be one of the most significant deterring factors.
The free float
Over the last few years, we have had a confusing and inconclusive public debate regarding the free float requirement for new entrants to the London equity markets. There remain significant issues in relation to the lack of free float in emerging markets mining issuers such as Bumi and Eurasian Natural Resources Corp, and there has been much commentary that for Premium Listings the 25% free float requirement should be increased. Indeed, David Paterson, the head of corporate governance at the National Association of Pension Funds (which represents about 15% of all shareholders on the UK stock markets) has been advocating that the 25% free float requirement being raised to 50% or more.
The Financial Services Authority however has recently concluded that the 25% free float requirement should rather be softened where there is sufficient liquidity, presumably to ensure that the UK remains competitive with other exchanges in attracting international issuers. However, formal relationship agreements will need to be put in place between a “controlling shareholder” and the listed company so as to deliver additional corporate governance safeguards for investors.
The US markets currently have no free float requirements and there seems to be a growing trend for UK issuers to consider listings in the US: the most notable UK issuer going to the US markets this year has been Manchester United.
Is this really a response to the JOBS Act?
BIS has heralded its proposal to be the UK’s response to President Obama’s JOBS Act. If it is, the UK’s response is inadequate and too small-minded. Clearly the US and the UK represent different markets, but in a quest to attract international businesses, the JOBS Act (JOBS stands for Jumpstart Our Business Startups) has significantly simplified the securities regulatory regime for businesses up to a fairly significant size. Clearly the UK is concerned that we do not lose businesses to the US markets and that we keep European companies within Europe. However, by focussing on how a company can come to market rather than from whom the company can raise funding without the need for a prospectus the UK proposals do not go nearly as far as they should.