Blink and you would have missed it.
Back on February 23, Saudi Arabia’s Dar al Arkan Real Estate Development Company announced the direct listing on the main segment of the London Stock Exchange of its international subsidiary, Dar Global.
It specializes in building luxury second and holiday homes in select locations in the Middle East, Spain’s Costa del Sol and London.
A private placement of shares worth around £60 million accompanied what was the largest listing on the main market of the LSE in the first quarter of 2023.
There was only one other, for Streaks Gaming, which raised £3 million on January 5.
It has been a dire start to the year, despite all the noise around the Edinburgh Reforms to revive London’s competitiveness and the ludicrous over-selling of a so-called 'Big bang 2.0'.
Thank goodness for those few still proclaiming the importance of London as a centre for equity capital raising that there were also three listings on AIM, the smaller company section.
The largest of these, Onward Opportunities, an investment fund itself focused on smaller businesses, raised £12 million.
Selling down
All together, these five initial offerings raised just £81 million. That is down 80% on the volume of proceeds raised through London IPOs during the first quarter of 2022, which was then considered a particularly weak period thanks to soaring inflation, policy rates rising from zero and Russia’s invasion of Ukraine.
Of course, rising rates and banking system panics don’t encourage new listings anywhere. First-quarter global IPO volumes of $21.5 billion in 2023 are down 61% compared with the start of 2022, according to analysis from EY.
The worry for London is that proceeds raised in the first three months of this year were 99% lower than the £5.7 billion raised in the boom at the start of 2021.
It is not a surprise that companies are not keen to list in the UK if there are no home-grown buyers
Few UK businesses have yet found a new post-Brexit business model. In a weak economy, foreign investors, including private equity funds, will continue to acquire listed UK companies and further dry up secondary trading.
The UK equity market is already heavily reliant on non-UK investors, who own 66% of all listed stocks. That compares with 44% foreign ownership of listed companies across Europe and just 17% in the US, according to analysis by Goldman Sachs.
Goldman points out that not only have UK pension and insurance companies’ allocations to domestic shares declined sharply in recent years, partly thanks to regulations on liability and asset matching, UK households, in aggregate, have not been investing in equities since 2010.
Regulatory reply
It is not a surprise that companies are not keen to list in the UK if there are no home-grown buyers.
Pressure is mounting on UK regulators to come up with a quick solution to London’s decline as a listing centre, even though regulation does not appear to be its main cause.
In a speech at the end of the first quarter, ahead of publication of a blueprint for further reform of the listing regime, Nikhil Rathi, chief executive of the UK’s Financial Conduct Authority, pointed out that replacing the current standard and premium listing segments with a single category would come with several other changes.
These could include: removal of eligibility rules requiring a three-year financial track record as a condition for listing – not always easy for fast-growing startups to meet; a more permissive approach to dual-class share structures; and the removal of compulsory shareholder votes for large transactions and for related-party transactions.
This is suddenly an environment of near desperation, where mistakes are likely to be made, for example in trying to encourage greater retail participation in new equity offerings while paring back disclosure requirements on companies.
There is a reason why this starts to feel like a race to the bottom.