By Alun John and Pablo Mayo Cerqueiro
LONDON, March 3 (Reuters) - London risks losing its
appeal for stock market listings, some investors and financial
executives said, with sluggish trading and low valuations
driving more companies to float elsewhere.
Arm, owned by Japan's SoftBank , on Thursday said a
U.S.-only initial public offering (IPO) was the "best path
forward" for both the chip technology firm and its stakeholders.
That dashed government hopes that Arm, seen as a British
tech success story, would return to the London market, where it
was listed before being taken over in 2016.
"There is zero surprise that Arm has chosen New York, and
many other businesses, particularly where the majority of their
operations are in the U.S., will follow," said Iain McDonald,
founder of investment advisory firm Belerion Capital.
Arm's announcement came a day after Dublin-based
construction materials company CRH recommended moving
its primary listing from London to the United States.
"It's a move that seems to make sense for a company that
does so much business Stateside, but it hints at further
dissatisfaction with London's ability to cut it as a global
financial superpower," said Danni Hewson, head of financial
analysis at AJ Bell.
In another blow to London, Flutter Entertainment ,
the world's largest online betting firm, said last month it
would consult shareholders on an additional U.S. listing.
McDonald said that if companies like Arm do not list in the
U.S. they would "simply be acquired by better capitalised,
higher-rated U.S. competitors", pointing to reduced market
liquidity and support for growth companies in Britain.
Britain's troubles in attracting IPOs stem partly,
investment bankers say, from London-listed companies being
valued lower than those in the United States.
S&P 500 index companies trade at 17 times 12-month
forward earnings, compared with around 11 for the FTSE All-Share
index , a gap that has grown in the past decade.
London accounted for just 1.1% of the total amount raised by
companies in listings in 2022 and ranked 13th in a table topped
by China and the United States, Dealogic data shows.
So far in 2023 it is 21st, with China again in top spot.
But British companies that floated in New York have not
necessarily had the smooth ride they expected, data compiled by
the London Stock Exchange (LSE) suggests.
By the LSE's own count, the 22 British businesses that have
floated in the U.S. over the last decade have seen their shares
drop by 38.6% on average.
'AMBITIOUS REFORMS'
Britain remains a leading global financial centre, the
headquarters of many major global institutions, the world's
largest foreign exchange trading venue and home to one of
Europe's largest stock exchanges by market value.
But Arm's decision should be a wake-up call for officials to
make Britain a more attractive destination, LSE Chief Executive
Julia Hoggett said.
"(It) demonstrates the need for the UK to make rapid
progress in its regulatory and market reform agenda, including
addressing the amount of risk capital available to drive
growth," Hoggett said on Friday.
Britain has launched a series of reforms designed to
streamline listing rules and make it easier for investors to
allocate more cash to stocks, rather than bonds.
"The UK is taking forward ambitious reforms to the rules
governing its capital markets, building on our continued success
as Europe's leading hub for investment, and the second largest
globally," a government spokesperson said in a statement.
Among the measures already in place is a reduction of the
minimum free-float required for companies to list, and further
reforms are in the works, including a review of the LSE's
Premium and Standard listing segments.
"The U.S. is a big competitor, but it's important for
companies to look at the data," said one person with knowledge
of British efforts to win more listings.
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(Additional reporting by Sinead Cruise, Huw Jones and Pablo
Mayo Cerqueiro; Editing by Alexander Smith)
