On 19 July 2022, the Secondary Capital Raising Review (the Review) was published setting out recommendations to improve the efficiency of further equity capital raising by London main market listed companies. The Review was commissioned by HM Treasury in October 2021 (following Lord Hill’s recommendation) and is the latest set of proposed reforms to the UK capital markets landscape.
It follows the FCA’s recent discussion paper on the purpose of the UK listing regime (DP22/2), HM Treasury’s review of the UK prospectus regime (the UK Prospectus Regime Review) and the changes to the Listing Rules brought about by PS21/22.
Our previous notes on these can be found here, here, here.
Our view
The Review is wide-ranging, thought-provoking and brimming with ideas for a comprehensive recasting of how UK listed companies conduct secondary capital raises. Whilst there are some easy wins to be had, root and branch reform remains some time off and will rely on stakeholders working together for the good of the London markets.
It still feels like a fairly long road ahead: the proposals set out in the Review will need support from the buy-side to reform institutional shareholder guidance, HM Treasury to reform the prospectus regime, and the FCA to reform the Listing Rules. Market practitioners will also need to navigate successfully any conflicts with the requirements of US investors (and the investment banks who assist with procuring those investors) and perhaps most importantly, the proposals will require significant reform of the way in which investors hold their shares.
The Review does nevertheless bring some light at the end of the tunnel and provides the market with some certainty at least to the direction of travel of the proposed reforms.
If secondary capital raises are made easier, it will undoubtedly be attractive to prospective IPO candidates and help bolster the London market’s reputation. However, as the Review demonstrates, those markets that do have more efficient models for raising further capital (such as Australia) are not necessarily the biggest or most attractive venues. Of wider importance in attracting issuers to London will always be the fundamental market factors, including valuation differentials and liquidity levels, and the burden of the wider listing regime, which is within the remit of the FCA’s ongoing consultation.
