City business has had cause to take heart in recent months with a clear display of political will behind an overhaul of UK listing rules that could see London shake off its Brexit and pandemic woes and reassert itself as a global financial hub. Our Global London report finds US and European firms alike concerned about the status of their London offices now that Brexit is a hard reality.
Proposals set out in the UK Listing Review in March, led by Lord Hill, will particularly pique the interest of anyone tracking the special purpose acquisition company (SPAC) market. Indeed, the ubiquity of those deals has made them difficult to miss. There has been much talk of London jumping on the bandwagon in a fit of FOMO as other listing destinations, especially the US and Amsterdam, pile into that frothy market with gusto. However, to say that London has been lagging competitors in the US, Europe and Asia for too long is an understatement, and any shake-up to expedite parity with peers has not come a moment too soon.
There has been much talk of London jumping on the SPAC bandwagon in a fit of FOMO.
Capital markets partners generally see the recommendations of the review as striking the right note in tackling the main pitfalls to investors considering the London Stock Exchange as a credible platform for launching SPACs and initial public offerings (IPOs) more broadly.
The main takeaways from the report include modernising listing rules to allow dual-class share structures in the LSE to give founders of the business enhanced voting rights and safeguards around corporate governance. There is also a proposal to reduce free-float requirements — the amount of a company’s shares that are in public hands — from 25% to 15% and let companies use other measures to showcase liquidity.
Importantly, there is also a call for an overhaul of the UK prospectus regime so that admission to a regulated market and offers to the public are treated separately, as well as liberalising the rules around SPACs, including safeguards for investors.
The hope is the report will prompt the UK to align with more sympathetic structures elsewhere. Many cite the incorporation of a safe harbour for forward-looking information in prospectuses as perhaps the biggest game-changer in attracting tech companies to list, a feature that would give London a competitive edge on its European counterparts.
Of course, a revolution will not come about just by fixing listing rules – it will require a change in investor mindset. That the UK doesn’t have the same knack for valuing growth companies as the US has become something of a cliché, but much could still rest on investor willingness to take a punt on fast-growing, loss leading, businesses. Indeed, there are already rumblings around an expected push-back from the buy-side to emerge as the Financial Conduct Authority’s consultation takes shape. Either way, it is fair to say that all eyes will be on whether the UK will have the audacity to overcome a notoriously conservative investment culture to grasp this particular nettle.