UK looks to ease path to market for capital-hungry tech firms
* Britain seen having poor record in tech stock IPOs
* UK govt source says issue "being looked at"
* Change of rulebook could involve free-float
* Some say AIM provides route for small company IPOs
By Kylie MacLellan and Matt Falloon
LONDON, Sept 14 (Reuters) - Aware that fast-growing technology companies often find it easier to raise capital in New York than London, the British government is looking again at lighter stock market listing rules or even a new market to foster growth in the sector.
With measures to boost economic growth back in vogue, encouraging tech companies would be part of a broader quest for economic stimulus and employment growth that could inject some life into the moribund economy.
The UK government, which has seen parts of London's East End emerging as technology hot spots, is also looking to support growth companies in the face of risk-aversion among many banks and indifference to the needs of smaller firms.
An easier path to market could be part of the solution.
"This is something that is being looked at," a Downing Street source told Reuters, but declined to give any details.
In contrast to the UK, the United States provides a well-established hub for tech listings and has seen a continued flow of stock market flotations, with more money raised on its markets than anywhere else this year.
London has made previous attempts to boost tech listings activity, and smaller companies more generally, but these have met with mixed success.
Its Alternative Investment Market (AIM) for small, growing companies, has less onerous requirements, including no rules over the minimum proportion of its shares a company must float.
Launched in 1995, the number of companies listed on AIM peaked at around 1,700 in 2007, but has since declined to around 1,110 after more companies left than joined since the outbreak of the financial crisis.
London's main market also has a specialist tech segment called techMARK, launched in 1999, which aims to boost investor interest it tech stocks. But as part of the main market, companies face the same listing requirements as any other firm.
TechMARK's significance has also dwindled since the bursting of the dot-com bubble in 2000.
Europe has seen a slowdown in new listings generally over the last two years, as euro zone debt worries buffeted stock markets, and some technology firms, such as Edwards Group Ltd , ditched their attempts to go public in London in favour of the United States.
So what could the government do?
Lowering the proportion of shares a company is required to float, currently 25 percent unless a waiver is granted by the UK Listing Authority (UKLA), has been among suggestions from those hoping to revive the market.
The FSA carried out a consultation into listing rules earlier this year, which is due to report back later this month.
Although that consultation covered a much broader range of topics, including reverse takeovers and enhancing "premium listing" requirements to increase investor protection, the government could make its suggestions around the same time.
"You can understand why they would do it for the tech stuff, trying to get the start-up business going in these growth areas," said one investment banker. "It is hard to see it replicating itself over to the broader market."
An across-the-board change to listing rules would require the involvement of the UKLA, part of the Financial Services Authority (FSA) regulator, as London is an EU-regulated exchange which has to adhere to wider EU rules.
But exchange-regulated markets like AIM are freer to make their own rules, so creating a separate market for tech firms would be one option.
"The London Stock Exchange can do that at any time, if it thinks there is a real market. Alternatively, tech companies can consider the AIM market itself - it is well established, it is for growing companies and it has been a successful market," said Raj Karia, a partner at law firm Norton Rose.
The London Stock Exchange and FSA declined to comment on any potential plans to boost tech stock listings.
Some investors and those working on share offerings are sceptical that easing the rules by creating a new market would be enough to attract tech firms.
Last year, following concerns over safeguards for minority investors, the FTSE Group moved the other way, tightening the entry rules for its UK indexes. It now requires companies to have at least 25 percent of their shares freely tradeable, an increase from its previous 15 percent rule.
A greater "free float" improves a stock's liquidity and ensures a more diverse shareholder base. Investors in tracker funds had become particularly concerned about having no choice but to buy in to companies with low free floats.
Setting up a separate market would get round these concerns as investors would have more flexibility over whether to buy into companies, but some fund managers were still not keen on the idea.
"A third market? Complex. Unnecessary. Cumbersome. Maybe right today, but wrong tomorrow," said Charles Morris, head of absolute return at HSBC Global Asset Management.
"We have AIM for cheap-to-list, young, risky, adventurous companies and the main for more established companies. Take your pick ... surely AIM is fine for tech companies."
Others said changing the free float would make only a marginal difference to the number of tech firms listing in London. A greater impact would come from investing in universities, easing regulation and encouraging better early-stage funding for tech entrepreneurs and companies.
The fact that London, which is better known as a hub for resources companies, has significantly fewer analysts covering the tech sector and fewer investors knowledgeable on the area is also a difficult issue to overcome, with companies believing they are likely to achieve higher valuations in the United States.
"I don't think changing the free-float requirement alone would see us get a whole host of tech listings here in London," said Norton Rose's Karia. "There is a some way for London to go to catch up with the U.S. That is not to say we don't try."
- Tweet this
- Share this
- Digg this