20 Are there any other current developments or emerging trends that should be noted?
Recent IPO trends
The UK IPO market continues to be dominated by uncertainty. 2018 was a mixed year; after what was seen by some as a promising start, IPO levels in 2018 were down from 2017 both in terms of the number of IPOs and the total amount raised. However, the number of main market IPOs in the fourth quarter was reported as being the highest in a single quarter since 2014. A number of the largest UK IPOs in 2018 were backed by financial sponsors, and the most active sector in 2018 was financial services.
Drivers for regulatory change
In 2018, the FCA introduced a concessionary route to premium listing for sovereign controlled commercial companies, that is, an issuer with a sovereign shareholder that controls 30 per cent or more of the issuer’s voting rights. An issuer admitted to listing in this new premium listing category is not required to enter into a relationship agreement with its sovereign controlling shareholder or to obtain shareholder approval for transactions with its sovereign controlling shareholder under the FCA’s related party transaction rules. Other existing requirements for a controlling shareholder, in addition to the other eligibility criteria for a premium listed commercial company, continue to apply. The introduction of this concessionary route attracted criticism from some market participants that the FCA had been driven by political pressure to lower certain corporate governance standards in order to attract a potential very significant IPO by a non-UK state-owned entity.
The question of whether the FCA will consider amending its rules to permit dual-class share structures for a premium listed company remains. Moving away from the ‘one share one vote’ principle has been viewed to date as inconsistent with the high investor protection standards attaching to a premium listed company. However, certain market participants point to the recent change the Hong Kong stock exchange has made to its listing rules, which now permit dual-class shares in certain circumstances. This move was seen by many commentators as an attempt to attract large international tech IPOs, which tend to favour the increased flexibility permitted in the US.
There is continued uncertainty surrounding the future of financial passporting when the UK ceases to be a member of the European Union. To the extent that there is a transitional period, it is expected that firms will continue to benefit from passporting between the UK and the EU throughout that period. If the UK leaves the single market without putting in place a new arrangement on financial services, the UK market will have to rely on the power of the European Commission to approve a non-EEA prospectus if it meets international standards considered to be equivalent to EU requirements. However, this is less likely to impact institutional offerings into the EU, where prospectus exemptions are available.
The EU (Withdrawal) Act will transfer and convert existing EU law at the point of exit into UK law, and new secondary legislation will amend this legislation to ensure that it functions effectively when the UK leaves the EU. With regard to its own rules, the FCA is preparing for a number of scenarios, including to ensure consistency with the new legislative framework in the event of an exit.
Impact of recent changes to the IPO process
In 2018, new rules came into effect that were aimed at improving the way in which information is made available to potential investors in the context of a UK IPO. Key aspects of the new rules include re-sequencing the publication of the prospectus and pre-deal research prepared by connected research analysts, with the aim of making the approved prospectus the primary source of information available to potential investors. The new rules also seek to reduce the reliance placed on pre-deal research prepared by connected analysts, by giving unconnected analysts the same access to, and information about, the issuer as connected analysts, before the latter are permitted to publish pre-deal research. Since the introduction of the new rules it has become clear that, for a number of commercial and practical reasons, the preferred route as regards the timing of the unconnected analyst briefing is for split presentations to be given to connected and unconnected research analysts (see question 9), notwithstanding the resulting extension to the overall timetable. Take-up by unconnected analysts of the opportunity to participate in a dedicated unconnected analyst presentation and/or to receive the same materials provided to the connected analysts has been low to date. This is likely to be due, at least in part, to the cost of producing, and a perceived lack of demand for, unconnected pre-deal research, given the challenges facing research analysts in the UK as a result of the impact of MiFID II.
The new regime has also resulted in the first public announcement about an IPO occurring one week earlier, at the time of the publication of the registration document, although this tends to refer to an ‘expected’ intention to proceed with an IPO. In early 2019, the FCA undertook a review to gauge market reaction to the recent changes to the UK IPO rules. Although the survey was based on only a limited number of IPOs, the FCA reported that most of the market participants it engaged with recognised that the new rules improve the information available at an earlier stage and supported a more balanced investor education and price discovery process.
Changes to the prospectus regime
A new EU Prospectus Regulation applies from 21 July 2019, save for certain changes to the exemption from the requirement to produce a prospectus in connection with an application to trading on a regulated market, which have applied since 20 July 2017. The new regulation replaces the Prospectus Directive in its entirety and, as a directly applicable regulation, does not require transposition into national law. Key changes intended to make a prospectus more user-friendly for investors include a shorter prospectus summary, which is more prescriptive in content, an increase in the type of information that may be incorporated by reference in a prospectus, and restricting risk factors to risks specific to the issuer and its securities, and which are material for taking an informed investment decision, in an effort to reduce the number of so-called ‘boilerplate’ risk factors. Other changes include a shorter prospectus or ‘EU Growth prospectus’ for certain secondary issues occurring at least 18 months after admission, a fast-track shelf-style approval process for frequent issuers and a lighter regime for public offers by smaller companies, including small and medium-sized issuers or SMEs, provided that they do not have any shares admitted to trading on a regulated market.
New guidance for sponsors
The FCA has published new guidance for sponsors to clarify what is expected of them regarding certain of their responsibilities under the Listing Rules. In the context of an IPO, a sponsor is required to make a declaration to the FCA covering a number of topics, including that the directors of a listed company understand their responsibilities and obligations, and have established procedures to enable the listed company to comply on an ongoing basis with its obligations under the Listing Rules, Disclosure Requirements and Transparency Rules. The aim of the guidance is to ensure a consistent approach by sponsors, and there is a focus on ensuring that sponsors do not adopt a ‘one size fits all’ approach without recognising the background and experience of the directors or the circumstances of the issuer. In particular, the guidance includes examples of what the FCA may see as ‘reasonable steps’ for a sponsor to take and makes it clear that the FCA expects the sponsor to take action to comply with this requirement, rather than rely on the work of third parties, such as the issuer’s lawyers.
Back to top