Initial public offerings (IPOs) : Why companies from Europe, Russia and the CIS are talking about London listings
Six of the top 10 IPOs in London in 2019 have been from international issuers. Over the past 12 months, we have seen listings from the world’s largest Coca-Cola bottler Coca-Cola European Partners, the world’s leading uranium producer Kazatomprom, and Slovenian bank NLB. This year, we are proud to have been able to support small and medium sized businesses such a Kazakh vanadium producer Ferro-Alloy and Russian fintech business ZAIM. These highlight London Stock Exchange’s position as the world’s leading cross-border IPO destination.
In our many meetings with management teams across Europe, Russia and the CIS, we have learned about their growth aspirations and discussed with them how an IPO can help to deliver these.
While every company has its own particular reasons for taking this important step, common themes and questions arise.
Over 240 businesses from Europe, Russia and CIS listed on London
Companies are keen to explore the relative merits of a London IPO, as well as the option of a dual listing alongside one on their local exchange. In some cases, they also want to understand the advantages of London over other international exchanges. They have plenty of peer group examples to learn from - there are already more than 240 businesses from Europe, Russia and the CIS that are listed and traded on London’s markets, with a combined market value in excess of $1trn.
We find that the London market is attractive to them because of its depth of liquidity, its international investor base, and the established ecosystem of professional advisers with specific sector expertise. The profile that comes from a London listing can carry significant value, particularly for a company with an international customer base.
An attractive option for privatisations
London is an attractive option for privatisations. We work in partnership with international companies and their domestic exchanges to support governments in floating state assets in the best possible way. In two major privatisations, of Slovenian Bank NLB and Kazatomprom, 75% of capital was raised through London from international institutions and while enabling local pension funds and retail investors to gain access to their national assets. Another reason companies choose London is the aftermarket support via our Issuer Services platform. For example, recently we have hosted a first ever Investor Day and live webcast for Kazatomprom and a fantastic first year listing anniversary celebration for NLB.
In any given year, the amount of money raised by listed companies in follow-on capital is three to four times the amount raised in IPOs. In the first three months of 2019, for example, IPOs accounted for just over £6bn of the total of £24bn raised across our markets. The depth of the London market - and its experience in accelerated offerings - is a particular factor that is discussed when a business has a number of shareholders wishing to subsequently sell down.
One clear trend that we are seeing is for companies to add a London listing not to raise funds immediately but in order to raise their visibility and improve market access among investors - such as the €23bn business Coca-Cola European Partners.
Growth-hungry companies in Europe, Russia and the CIS are attracted by the potential of the valuable new acquisition currency that a London listing provides them. Since 2016, London-listed companies have used their paper to buy businesses in 60 countries. London-listed paper is recognised around the world as a powerful currency. It is a significant advantage for any company seeking to expand its global footprint through acquisition - and is unmatched by any other exchange in the world.
Tapping into an international investor base
While an IPO enables existing shareholders to monetise all or part of their stake, it also provides an opportunity to diversify a company’s shareholder base. As the most international exchange, a London listing enables international companies to tap into our uniquely diverse international investor base. UK investors typically comprise less than half (49%) of the shareholder register of London-listed securities. In most local exchanges across Europe, Russia and the CIS, the percentage of domestic investors will be well above 80%.
While IPOs have not been as numerous in 2019 as in 2018, London has outperformed in this tough market. The value of capital raised via IPOs globally dropped 20% in Q1-Q3 2019 compared to the same period in 2018, while in London the value of capital raised actually increased by 2.3%.
One of London’s key strengths is its robust, proportionate yet flexible regulation environment along with the rule of law. We are often asked by executive teams about which of our market segments will most suit their needs. London Stock Exchange is rightly proud of its innovations which have created numerous entry points for companies of all sizes and stages of growth. Issuers can choose the world’s leading growth market, AIM, as well as Standard or Premium listings on the Main Market. The Main Market offers further options such as the High Growth Segment and the recently launched Shanghai-London Stock Connect programme.
How long will an IPO take?
There’s one other recurrent theme in our conversations - the length of the time of the IPO process. London’s long-recognised advantages of its globally respected regulatory infrastructure and legal system help to provide an attractive environment for IPOs. Clear rules around issues such as governance and disclosure provide clarity and transparency, all in a conveniently located time zone.
We spend a lot of time talking with companies about how they can work with advisers to prepare a clear roadmap towards their IPO - identifying key investors and then building up trust and relationships with them. This long-term education of investors has been a major development in the IPO process over the past decade; it is an important process in which London Stock Exchange and professional advisers can help. If all the building blocks are in place, then an IPO process may take between four to six months.
How companies from Europe, Russia and the CIS can ensure that their building blocks are in place is a focus of our IPO Forum at which questions, issues and concerns are raised in a private environment with investors, advisers and CEOs who have been through the process.
Head of Europe, Primary Markets