UK doubles down on reviving London IPOs by tweaking rules

THE UK is doubling down on efforts to boost listing activity as London initial public offerings (IPOs) sink to levels not seen since the global financial crisis. 

The British market watchdog last week suggested doing away with the distinction between premium and standard listings, to create a single category instead for companies seeking a London IPO. It’s the latest move in a larger campaign over the past year to attract more startups and boost the capital’s standing in a post-Brexit world.

So far, proposed rule changes like allowing founders to retain control of companies post-listing have done little to boost activity, while the high-growth stocks the UK seeks to capture have fallen out of favour this year amid rising interest rates. London’s IPO market is on track for its worst first half since 2009, with only £604 million (S$1.04 billion) raised in 2022, according to data compiled by Bloomberg.

“Simplifying the process and reducing some costs will likely be music to the ears of companies considering a London listing,” Robin Walker, IPO specialist at Equiniti Group said in written comments, noting the City faces competition not only from the US, but also from the likes of Amsterdam and Stockholm. 

London has been gradually losing ground to continental exchanges in the wake of the Brexit vote, with the Netherlands and Sweden narrowing the listings gap over the past couple of years. A string of recent flops like Deliveroo and THG, which have both plunged more than 70 per cent from their IPO prices, has poured cold water on investor appetite in the UK. 

A growing number of British companies is ditching a home listing for the US, lured by the promise of higher valuations and a deeper pool of capital. Blank-cheque mergers have become a popular route to public markets for UK startups, used by health-care app Babylon Holdings and online car-sales platform Cazoo.

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The proposed changes could pave the way for index inclusion of tech companies with unequal voting rights, but there’s no guarantee streamlining the rules will remove this stumbling block. As it stands, only stocks trading on the premium segment, subject to the strictest governance and disclosure requirements, are eligible to be taken up in the FTSE Russell benchmarks and benefit from passive investment flows.

While simplifying London’s listing regime may help encourage more high-growth companies to stay in the UK, there’s more work to be done to boost access to the market, like moving away from old-fashioned prospectuses, said Susannah Streeter, a senior analyst at Hargreaves Lansdown. 

“Retail investors should be given much more opportunity to invest at IPO, as currently, the vast majority are limited to institutional investors,” she said. BLOOMBERG