The U.K. government has appointed a senior lawyer to investigate how Britain can encourage companies to list on the country’s stock market and halt a growing exodus that some fear is threatening the City of London’s status as one of the world’s top financial centers.
Rachel Kent, a senior partner at law firm Hogan Lovells, will begin a review on Monday as part of the government’s ‘Edinburgh Reforms’ designed to boost investment by reducing regulation.
Kent will deliver within three months a review – focusing on investment research – that “seeks to develop concrete steps the government can take to enhance London’s status as Europe’s leading listings destination, and only second globally”, the U.K. Treasury said in an email.
The appointment comes amid growing worries that the City of London’s attractiveness as a destination for companies to raise capital is waning.
In just the last few weeks, Ireland-based building materials group CRH
CRH,
a member of London’s blue-chip FTSE 100 index, said it may shift its primary listing to New York. Chip designer ARM has rebuffed intense entreaties from the City and is also also looking to do an IPO in the U.S..
Low valuations are considered an important driver of companies eschewing London, according to analysts. The European equity strategy team at Citi this week noted that the U.K. stock market trades at a record 40% discount to Wall Street.
“As a result of this wide value gap, newsflow indicates that CEOs of U.K. companies are facing renewed calls to realize value for their shareholders, with re-listing across the Atlantic emerging as a potential option,” said Citi.
The U.K. government fears that a dearth of focused research, which “provides investors with information that allows them to understand a company’s business model, performance, and risks, and therefore to assess its value as an investment” is contributing to the City’s equity entropy.
“Concerns have been raised about the quality and quantity of investment research produced in the UK as compared to other jurisdictions – particularly for certain sectors like tech and life sciences – and that this could undermine valuations and therefore the attractiveness of the UK as a place to list and make it harder for companies to access private capital,” said the Treasury.
The Treasury said that pre-Brexit rules may have stymied the delivery of such research.
“Some market participants and representative groups have specifically pointed to the EU derived MiFID II unbundling rules as a potential source of decline of investment research in the UK. The review will seek evidence as to whether these rules may have contributed to the decline in the quality and quantity of UK research, ” it said.
