New listing rules aimed at improving the appeal of the UK market by cutting disclosure requirements have received mixed reviews from investment bankers, with some raising concerns about the impact on their work.
The reform, which came into force last week and underpins the public offers and admissions to trading regime, has increased the cap at which companies that are already listed in the UK need to create a prospectus to raise further funds. The cap has now been moved from 20 per cent to 75 per cent of existing listed shares. A prospectus would still be required for initial public offerings.
This aims to cut the need for the laborious and time-consuming exercise of producing the documentation a company needs to sell new shares to prospective investors.
Experts say it can take up to six months for bankers to help the legal counsel of a client create a prospectus for a listed company. If the company is unlisted it can take six months or longer to create a prospectus for an IPO.
Barclays’ head of UK equity capital markets Chris Madderson told The Banker: “Giving corporates greater flexibility not to require a prospectus is positive, particularly those looking at M&A and growth strategies.”
However, Nicholas Holmes, partner and head of equity capital markets at law firm Pinsent Masons, said that investment banks he speaks to about the reform have a degree of enthusiasm but are nervous about the pressure they may face from clients to raise capital without a prospectus.
“Some banks might have a higher tolerance to do certain things than their competitors and there is less guidance from the regulator [the Financial Conduct Authority] that is leaving the market to work out best practice,” he said.
“Banks will be thinking about what size of offering they do for a company on an undocumented basis and here there are questions about the level of percentages [in the transaction], amount of money being raised and sector the company is in,” he added.
A senior banker at a global lender based in Europe said their bank will advise clients on how to apply the no-prospectus rule on a case-by-case basis because of the varying complexity of each capital raise.
Jon Murray, head of Emea ECM origination at Mizuho, argues that a primary market equity issuance like a rights issue tends to be underwritten using a bank’s balance sheet, which is risky for a lender.
“Whether it’s a rights issue or any equity placement, we would not want to do something that is ill advised or poor for our client or the market just because you can do it,” he said.
He is also doubtful that bankers will have less work due to the new rules because they still need to carry out deep company and market analysis ahead of any equity offering.
Another senior banker at a big European lender agrees that the workload should remain the same.
“We are much more focused on the investment case for any company rather than the prospectus, and that involves advisers needing to do proper due diligence, which will not change with these new rules,” they said.
They added that even if a prospectus is not circulated, then important information about the raise still needs to be contained somewhere such as an investor presentation deck.
The same banker also said their institution would never carry out a capital raise for a client solely on the basis of them not wanting to issue a prospectus, because of the reputational hit to the bank if something went wrong.