The outlook in the initial public offering (IPO) market for 2010 is uncertain. However, companies able to offer a compelling investment business case can take advantage of a renewed opportunity to attract investment from public equity markets.
Companies looking at a stock market quotation now have a wider choice of listing category to consider as the Official List, the London Stock Exchange's main market for listed securities, now has two tiers:
- a Premium Listing, retaining the standards currently applicable to all existing primary listings by UK companies on the Official List; and
- a new Standard Listing, with less onerous standards.
A similar split applies in respect of the PLUS-Listed market operated by PLUS Markets.
The standards applicable to a Premium Listing are more stringent than the minimum EU standards for admission to a regulated stock market, including the Class Tests that have required companies to seek shareholder approval to certain major transactions. In contrast, the new Standard Listing segment, which replaces the secondary listing that was previously only available to overseas companies, will require only the minimum EU standards to be met.
Overseas companies retaining a Premium Listing from 6 April 2010 will be subject to more onerous corporate governance, pre-emption rights and other obligations than those that have previously applied to them.
With effect from 6 April 2010, companies will be able to switch from a Premium to Standard Listing without being required to de-list (although 75% shareholder approval is required for companies on the Official List) in order to benefit from reduced compliance burdens and costs, including fewer restrictions around raising funds. It should be noted, however, that current FTSE index classifications will not apply to companies with a standard listing and the pool of potential investors is likely to be significantly reduced. Certain institutional investors have indicated that they will continue to encourage Premium Listings and the more stringent corporate governance standards that go with it. It therefore seems likely that most primary listed companies will continue to choose a Premium Listing, despite the more onerous obligations that go with it, in order to avoid a reduction of liquidity.
Standard Listings have been available since 6 October 2009 to companies seeking to issue equities (excluding investment equities), global depository receipts and debt and securitised derivatives. A standard listing may appeal to companies which do not currently meet the eligibility requirements for premium listing, particularly those companies that see it as a stepping stone to premium listing, as an alternative to an admission to AIM.
The new less regulated Standard Listing means that many of the eligibility and continuing obligations for standard listed companies are now less stringent than those applicable to AIM-listed companies. This has led to suggestions that the standard list may pose a serious threat to AIM, although there are additional steps required in comparison with AIM admission to list on the standard segment. Examples include the requirement for a 25% free float and the obligation to produce a prospectus rather than admission document (the table below provides further detail).
It remains to be seen whether companies that would have traditionally considered listing on AIM will now see the standard list with the prestige associated with the Official List as a more attractive option.
Ultimately, a company's particular financial position and requirements for fundraising will be the governing force behind the decision as to which market to choose for listing. The table below summarises the main differences between the Premium and Standard Listings on the Main Market and AIM.
Click here for table.