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Lexis®PSL Corporate and Market Tracker have conducted research to examine current market trends in respect of equity capital markets (ECM) transactions in 2019.
Background and approach
This review looks at the 22 companies which listed on the standard segment of the Official List 2019 (by way of IPO, introduction or transfer from AIM) and forms part of our annual trend report which aims to provide insight into the current dynamics of ECM activity in the UK. The other parts of our 2019 trend report comprise:
• IPOs in 2019—Main Market and AIM
• Secondary Offers in 2019—Main Market and AIM
• Risk factor disclosure in 2019 IPOs
• Legal and regulatory developments in Equity Capital Markets 2019
Introduction to standard listings
Prior to the harmonisation of certain key elements of capital markets regulation across the EU, the UK listing regime was divided into a system of primary and secondary listing. A primary listing was the main listing category available to both UK and overseas issuers able to comply with the high standards of primary market regulation in the UK. The secondary listing category was reserved for overseas companies with a primary listing in their home jurisdiction and such companies were subject to a lower level of regulation under the UK Listing Rules.
The primary and secondary listing categories morphed into what we now know as the premium and standard listing segments when EU capital markets regulation relating to listing and disclosure was more closely aligned in 2005.
The UK’s more stringent ‘gold-plated’ primary listing rules which were over and above the EU minimum standards for admission to trading on an EU regulated market were retained for the premium listing segment whilst the standard listing segment was preserved for those issuers only able to comply with the EU minimum requirements.
More recently in 2017, the FCA launched a review of the split of the listing regime. In its Discussion Paper DP 17/02: Review of the Effectiveness of Primary Markets: The UK Primary Markets Landscape published in February 2017, the FCA noted that a standard listing has been perceived as an unattractive option for a listing. The lack of inclusion in FTSE indices also made a standard listing unattractive for larger companies. Stakeholders indicated that the purpose and obligations of a standard listing were unclear as well as the name suggesting it as a ‘second best’ option.
However, some market participants thought that there should be some degree of accommodation for companies wishing to list on the Official List which cannot or do not wish to comply with the ‘super-equivalent’ requirements of a premium listing.
In its Feedback Statement FS17/3, October 2017, the FCA stated that due to the market’s divergent opinions on the standard segment, it would give further thought on how to enhance the standard listing regime in due course.
At the end of the Brexit implementation period, the FCA may have more freedom in relation to what it can do with the standard listing category. If no agreement in this area is reached between the UK and the EU, the UK will not be obliged to maintain a listing category that is subject to the EU minimum requirements alone.
Standard listings in 2019
In 2019, 22 companies listed on the standard segment of the Official List out of a total of 39 companies that were admitted to the Main Market (56%). This can also be compared to the ten companies that listed on AIM in 2019. Over half the companies admitted to trading on the Main Market in 2019 (by way of IPO, introduction or transfer from AIM) listed on the standard segment of the Official List.
Natural resources companies, such as mining companies and oil and gas companies, made up the majority of the companies undertaking a standard listing in 2019 (ten in total: seven mining companies and three in the oil, gas and coal sector). Seven investment companies listed on the standard segment in 2019. The other sectors represented were software/IT, investment services, finance and beverages.
Special purpose acquisition vehicles
Eight companies which listed on the standard listing segment in 2019 were special purpose acquisition companies or SPACs formed specifically for the purpose of making an acquisition. These do not meet the eligibility criteria for a premium listing as they do not have the required revenue earning track record or an independent business as required by LR 6.3 and 6.4 of the Listing Rules. SPACs will also not generally meet the eligibility criteria for a premium listing under chapter 15 of the Listing Rules as closed-ended investment funds as they do not invest in assets with a view to spreading investment risk as required by LR 15.2.2.
SPACs are eligible for admission to AIM but must undertake a fundraising of at least £6m and must implement their investing policy within 18 months of admission or seek shareholder approval for their investing policy at the next AGM and on an annual basis thereafter until the investing policy has been substantially implemented (Rule 8 of the AIM Rules for Companies). There are no equivalent rules relating to SPACs listing on the standard listing segment of the Official List.
Only one SPAC was admitted to trading on AIM in 2019 (Longboat Energy plc raising around £9.5m on admission).
Nine of the 22 companies which listed on the standard listing segment in 2019 were dual listed. Seven of the dual listed companies were in the natural resources sector.
The exchanges on which these companies were dual listed were the Toronto Stock Exchange (TSX), the New York Stock Exchange (NYSE), the Australian Stock Exchange (ASX), the Astana Stock Exchange in Kazakhstan, Euronext Amsterdam and Spanish Stock Exchanges.
Ferro-Alloy Resources Limited, the mining and mineral processing business in Kazakhstan, was originally listed on the Kazakhstan Stock Exchange when it obtained its standard listing in March 2019 but subsequently de-listed from the Kazakhstan Stock Exchange and listed on the Astana International Exchange in January 2020.
Coco-Cola European Partners delisted from Euronext London on obtaining its standard listing on the London Stock Exchange. It is also listed on the NYSE, Euronext Amsterdam and Spanish Stock Exchanges.
Huatai Securities Co., Ltd obtained a standard listing for its GDRs in June 2019 under the Shanghai-London Stock Connect scheme which connects the London Stock Exchange with the Shanghai Stock Exchange allowing companies listed on one market to list depositary receipts on the other market. It was the first company to make use of this scheme which was launched in the same month.
Reasons for a standard listing
Generally companies obtaining a standard listing are either not eligible for a premium listing (for example, they are newly incorporated and do not have a trading history) and/or do not wish to comply with the additional requirements imposed on companies with a premium listing.
The key eligibility criteria for a company applying for a standard listing are that its securities are freely transferable, it has a market capitalisation of at least £700,000 on admission and a free float of at least 25%.
A company listing on the premium listing segment must comply with the more stringent super-equivalent eligibility rules including having:
• an independent business
• a three year revenue earning track record
• sufficient working capital for the next 12 months
• a sponsor to guide it through the admission process and give certain undertakings to the FCA about the company’s eligibility for listing
The continuing obligations for a premium listed company are also more onerous.
Several companies obtaining a standard listing in 2019 made a statement in their prospectus stating that a standard listing was more appropriate for a company of its size and type as in particular:
• a standard listing as compared to a premium listing will facilitate more cost efficient administration and the company wishes to align its regulatory responsibilities and the associated cost with the company’s size
• a standard listing will mean the company is not required to comply with super-equivalent provisions of the Listing Rules which has a direct cost saving, and
• the Listing Rules for securities with a standard listing are far less demanding and stringent than those applicable to securities with a premium listing
Voluntary compliance with additional listing rules
A company with a standard listing does not need to comply with rules relating to:
• appointment of a sponsor in Chapter 8 of the Listing Rules
• ongoing continuing obligations in Chapter 9 of the Listing Rules
• significant transactions in Chapter 10 of the Listing Rules
• related party transactions in Chapter 11 of the Listing Rules
• purchases of own shares in Chapter 12 of the Listing Rule, and
• form and content of circulars in Chapter 13 of the Listing Rules
In many cases standard listed companies will agree to comply with certain of these rules on a voluntary basis and a statement to that effect is usually set out in the company’s prospectus. However, the FCA does not monitor compliance with those parts of the Listing Rules that companies comply with on a voluntary basis.
Of the 22 companies completing a standard listing in 2019, 14 companies made some statement in their prospectus about complying voluntarily with additional FCA listing rules or corporate governance codes. (As companies often made statements about complying voluntarily with more than one of these provisions, the combined total in the graph below exceeds 22.)
Seven companies stated they intended to comply with the Corporate Governance Code issued by the Quoted Companies Alliance (QCA Code) and six companies stated they intended to comply with certain main principles of UK Corporate Governance Code (UKCG Code) in all cases so far as appropriate to the company’s size and nature. Five dual listed companies made a statement that they comply with rules on corporate governance as required by another exchange or by the company’s overseas country of incorporation.
One company stated that the directors had given due consideration to the principles and recommendations set out in the UKCG Code but did not state whether they intended to comply or not.
Seven companies stated that they would comply with some or all of the Premium Listing Principles.
Five companies stated they would comply with the rules on related party transactions to some extent (most commonly stating that the company will not enter into a related party transaction without the prior specific approval of independent directors).
One dual listed company made the statement that it must comply with certain rules relating to significant transactions and related party transactions under the rules of the other exchange.
One company made a statement that the company is in any case required to comply with the related party transaction provisions in DTR 7.3 (which all listed UK companies must comply with and which are less onerous than the related party rules in the Listing Rules).
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Market Tracker is a unique service for corporate lawyers housed within Lexis®PSL Corporate. It features a powerful transaction data analysis tool for accessing, analysing and comparing the specific features of corporate transactions, with a comprehensive and searchable library of deal documentation across 14 different deal types. The Market Tracker product also includes news and analysis of key corporate deals and activity and in-depth analysis of recent trends in corporate transactions.
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