By Lewis Huxley, Finance Graduate at Durham University
London is undoubtedly one of a few truly global cities, with millions of visitors flocking to the UK capital annually. However, in the wake of Brexit and with attractive alternatives, the City of London faces somewhat of an identity crisis.
Throughout this year, there have been a number of stories that paint the London Stock Exchange in a less than favourable light. The news that the world’s largest mining company, BHP (The Broken Hill Proprietary Company), will be exiting from the FTSE 100 has brought forth widespread doubt about the future of the UK as a priority for companies listing their stock – with good reason. BHP is one of the largest companies in the FTSE, closing as the second most-valuable listing as of August 17th, and has a proud history with the LSE dating back 20 years. The company has long held a ‘dual-listed’ structure, in which two listed companies (in this case BHP Ltd in Sydney and BHP Plc in London) operate as one organisation via various legal agreements, but has decided to shift its primary listing to Australia. While it will still retain a standard listing in the UK, this comes as a huge blow to London’s reputation on the world stage as it navigates the choppy waters outside the EU and attempts to prove it is still globally relevant.
Food delivery behemoth Deliveroo’s failed IPO earlier this year was another blight on the City, as shares closed down 26% on their first day of trading on the LSE. While a number of factors likely led to this slump, high profile flops like this unequivocally stay in the minds of those considering a London listing versus other exchanges. Others appear to agree with this sentiment. Nalin Patel, Private Capital Analyst at PitchBook, stated to Reuters that “volatility facing Deliveroo’s share price is a setback for the UK’s ambitions to convince more VC-backed tech businesses to list”. It has even been floated that London may not fully understand or appreciate the “growth first, profit later” model and that New York may be a more suitable destination for growth technology companies wishing to go public. Claims like these do little to aid the City in its current plight.
There have also been suggestions that the LSE’s woes are down to a cultural problem within the UK. James Anderson, ex-fund manager famed for his tech investments, hit out at UK capital markets earlier this year. He blasted the UK for it’s “19th century” index, referring to the uneven makeup of the FTSE 100, and pointed to the lack of homegrown giant companies as a “real problem”. It seemed that the City agreed with this assessment, concluding in a Treasury-backed review that an overhaul of LSE listing rules was needed to remain competitive with the likes of New York and attract new tech companies. By all accounts, the LSE is planning to relax “free float” rules in place for new listings, while also potentially allowing premium listings for companies with dual-class share structures. These new changes could enable companies like THG (The Hut Group) to disrupt the FTSE 250 and also encourage new companies like fintech giant Klarna to list on the LSE in the near future.
While there have been some high profile disasters this year, such as the Deliveroo and Alphawave, there have also been some success stories that prompt a more hopeful outlook for the future. British fintech firm Wise joined the LSE in London’s first ever direct listing – a method where existing shares are offered to the public rather than issuing new ones – following in the footsteps of Spotify and other tech giants in the US. Cambridge-based cyber security firm Darktrace had a very successful IPO back in April, with shares rising as much as 44% on their LSE debut. Olam International, a food ingredients supplier, have also revealed their plans for a London listing alongside a dual listing in Singapore, with CEO Sunny Verghese stating it would be “one of the bigger listings” on the LSE in several years. Even Deliveroo appear to have recovered from their lamentable debut, with shares rebounding to IPO levels on the 19th August for the first time since listing. In fact, despite all the negative news in recent months, the LSE saw a 467% year on year increase in the number of IPOs during the first 6 months of 2021. These listings managed to raise £27bn (approx. $37.7bn), however, this figure was greatly surpassed by the $106bn raised via the tech-heavy Nasdaq during the same period.
With the future listings of fintech unicorns like Klarna, Monzo and Revolut on the horizon, it remains to be seen whether London will be the destination of choice for companies in the coming years.
