Since April this year, UK and overseas companies issuing shares on the Official List have been able to choose either a Premium or Standard listing – the latter providing the prestige of a Main Market listing while being subject only to the minimum EU requirements. But growing businesses wishing to raise money and float in London, free of the Premium listing’s added compliance, already have an option: the Alternative Investment Market (AIM). So does the Standard listing represent an alternative to AIM, a threat to it, or simply an additional route to a public listing?
Following a review by the UK Listing Authority (UKLA), UK and overseas companies issuing shares on the Official List are now able to choose to obtain either a Premium or Standard listing. For UK companies, it seems there are now three routes to accessing the UK’s equity capital markets - a Premium or Standard listing on the Main Market or admission to the Alternative Investment Market (AIM). Broadly, the Standard listing adds value to the London market by providing:
• Enhanced clarity for all participants of the UK listings market
• A level playing field for issuers so that the same rules apply for securities of the same category, irrespective of the nationality of the issuer
• Greater choice for UK companies who can’t comply with the eligibility requirements of a Premium listing
• A listing option for Special Purpose Acquisition Companies, for example, which undertake specialist types of transactions
• Another way for companies to cluster on a UK listing for the benefit of peer-group comparison
In theory, a UK issuer might consider a Standard listing to access a listed market with an international reputation and to take advantage of its lower regulatory requirements - and therefore lower ongoing compliance costs. These requirements are significant in that an issuer with a Standard listing is not required to comply with UK ‘super-equivalent’ provisions, which include the need for an acceptable three-year trading record.
Neil Matthews, Head of Equity Capital Markets at Eversheds, says: “No sponsor is required for a Standard listing, so the prohibitive costs of an investment bank can be avoided. Similarly, if the issuer is not required to comply with the UK Corporate Governance Code, it could reduce its spend on non-executive directors. Further savings could be made if a material transaction is exacted with lower regulatory obstacles, such as the requirement to seek shareholder approval.”
A greater AIM?
Of course, growing businesses wishing to raise money and float on a London market, free of the Premium listing’s extra requirements, already have a very good option: AIM. According to a recent report by Grant Thornton and the London Stock Exchange, AIM contributed £21 billion to UK GDP in 2009, and supported 570,000 jobs through direct, supply chain and multiplier effects. So does the Standard listing represent an alternative to AIM?
Marcus Stuttard, Head of AIM on the London Stock Exchange, says: “The Standard listing is an additional route to market, rather than a replacement, or threat to AIM. The companies on AIM chose the tailored regulatory environment that it offers. For many, a major consideration when choosing a public market is to benefit from peer-group comparison. AIM, like the Premium listing, already has a critical mass of companies, so by joining them it helps put a company on the radar of analysts that have a sector focus. The other spin-off benefits include the access to an established network of investors, NOMADs, brokers, market makers and all the other intermediaries that support the market. The NOMADs are there to offer assistance and vouch for their client companies and shouldn’t be viewed simply as a cost that can be avoided through a Standard listing.”
From the issuer’s perspective, the ability to secure the ‘badge of quality’ that the Official List proffers, combined with lower compliance costs than either a Premium listing or, arguably, an AIM listing, a Standard listing might appeal.
...or not, suggests Kelvin Harrison, Chairman of Maxima Holdings plc: “The benefit for a smaller quoted company of a full LSE listing compared with AIM was already very limited. The only real positive was prestige and that is of debatable value. The introduction of the Premium rating has essentially devalued the Standard listing, making AIM more attractive for a small to medium-sized business.”
Key to the success of the Standard listing is whether the investor community supports it. If it doesn’t, it begs the question of its relevance. Is it simply EU bureaucracy?
We asked David Flin of Investec Investment Banking for his views on this very point, “From an institutional investor perspective, the Standard Listing remains largely untested to date, with relatively little activity and the highest profile listings being cash shell acquisition vehicles. Accordingly, investors have not yet formed a view as to whether the protections afforded under a Standard listing are sufficient to promote this as a viable alternative to the more established listing options. Nor is it likely that the creation of the Standard listing has led to a broadening of the pool of capital available to businesses compared to AIM. In the short term, it is not clear what catalysts exist to allow the Standard listing to become a popular choice for new businesses coming to market (as opposed to specialist investment vehicles).”
“With the right dialogue between a company and its investors, a Standard listing might be the right environment for a company to reduce transaction costs and go through a period of growth before reverting back to a Premium listing,” says Paul Clarke, Criticaleye Associate. “It is also useful for companies which do not have the appropriate trading record for a Premium listing. They can join the Main Market with the stated intention of becoming Premium listed at the first available opportunity.”
Mario Levis, Professor of Finance, Cass Business School, says: “One of the key objectives for the new listings standards is to enable the UK to compete more effectively with the European and even US markets for new listings. The lighter approach would be of interest to some of them that look to London as a wider pool of capital with better liquidity, more institutional investors and firmer valuations and lower cost of capital. At the same time the Standard listing represents a delicate balancing act of complying with EU guidelines and protecting the standards in the Main Market.”
Neil Matthews suggests that, thus far, there has been remarkably little interest in the Standard listing and that a listing regime based only on EU-minimum requirements does not offer investors the protection they have enjoyed when investing in Official List companies. “Does it even offer the same level of comfort as an investment on AIM,” he asks. “At least investors can rely on the fact that an AIM quoted company must appoint and retain at all times a nominated advisor, responsible for assessing and signing off on its suitability for AIM admission and available to assist the company in complying with AIM rules.”
In response to questions regarding the specific requirements of the Standard listing, a spokesperson for the UKLA commented: “While an AIM quotation does impose some requirements going beyond a Standard listing - particularly requiring a NOMAD – a Standard listing also requires compliance with the Transparency Directive and the free float requirement imposed by the Listing Rules, which do not apply in full to securities admitted to trading on AIM. A prospectus, which is vetted by the UKLA, is only required for AIM companies when a public offer is made, which is unusual. In most circumstances an admission document is produced which requires fewer disclosures than a public offer prospectus. We would not therefore agree that a Standard listing imposes lower obligations on issuers than a quotation on AIM.”
In essence, the Standard listing gives companies more choice: specifically, UK companies unable to meet the eligibility requirements of a Premium listing can now access a public listing on the Main Market.
“A factor in this choice will be an issuer's assessment of the standards that will be expected by its target investor group,” concludes Marcus Stuttard. “Success will ultimately come down to investor preference and we are certainly seeing evidence that companies considering a Standard listing are, based on investor feedback, being advised to voluntarily adopt many of the ‘super-equivalent’ provisions that apply to a Premium listing.”
Please get in touch directly if you have any comments about the issues raised here.
I hope to see you soon,