Last week was awash with reports that the UK’s Financial Conduct Authority was once again preparing to alter listing rules on the London Stock Exchange to make the market more attractive for IPO candidates.
The most eye-catching reform being discussed is a combination of the premium and standard listing segments, allowing companies to list on the exchange under the conditions currently required for a standard listing but with the gold star of the premium tag.
London has seen two major reforms to its listing regime in the past few years. The first in 2018 made IPOs more transparent by introducing an extra week of investor education, primarily to allow unconnected analysts to provide research on companies.
The second, introduced in late 2021, implemented the recommendations of the Hill Review which reduced free float requirements for London and allowed companies to list under dual-class share structures.
According to an ECM lawyer, the 2018 review did not have a major impact, noting the lack of unconnected research published ever since its introduction. A second lawyer though said the Hill Review, was in a “different category”, with wide ranging changes aimed at simplifying the process. While both should theoretically have been positive for the market, neither led to an issuance surge.
After the reforms were introduced in 2018, UK IPO issuance dropped as the market panicked over the potential consequences of a No Deal Brexit. There have also been few new listings after the implementation of Lord Hill’s recommendations, with London’s new appeal unable to offset a global IPO malaise.
“You can’t change macro factors by regulation, but you can make the exchange more attractive to valuable companies from the UK and rest of EU,” the second ECM lawyer said.
Two of London’s best known software tech listings, the IPO’s of THG [LON: THG] and Deliveroo [LON: ROO], both had dual-class structures by tapping a standard listing prior to the changes of late 2021.
UK investors have been hostile to both deals. THG is down 73% from the IPO price and Deliveroo has fallen by 75%, with the latter subject to attacks from UK institutions during the pricing process. Sources have said the performance of both deals points to a cultural indifference among UK investors towards tech names.
“No review has been a game changer. It is difficult to think of anything that was done that had [a] real impact,” another ECM adviser said, adding that regulators should spend time talking more with companies and growth investors rather than spending too much time engaging with the UK yield investors and pension funds who mostly invest in London IPOs for the steady dividend and are the wrong buyers for growth stocks.
It remains to be seen whether another review is really what London needs.
