As part of an investment shake up, the FCA has confirmed that companies that are already listed won’t need to publish lengthy prospectuses to issue more shares, in most cases.
The length of time between a prospectus being issued and an initial public offering (IPO) is being halved, helping companies list more quickly on the stock exchange. They’ve also said that companies will be able to issue corporate bonds to retail investors more easily and a new public offer platform will help smaller growth companies raise cash to scale up.
Commenting on these latest moves by the regulator, Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’London has struggled to compete with super-star valuations on Wall Street and has been facing an exodus of listed firms leaving for pastures new. The City needs a leg-up and the Financial Conduct Authority is attempting to provide support by making it cheaper and easier for companies to raise funding in London. Companies have long bemoaned the difficulties of raising money in a tangle of red tape, which this shake up is designed to cut through.
These changes in prospectus rules should encourage more companies to raise money on the London market and make the UK more attractive place to list. In addition, it will result in more capital raisings being open to retail investors. At Hargreaves Lansdown we know there’s huge demand for participation from long term retail investors but all too often they’ve be cut out. These new rules present a sea change from the regulator, its now time for the funding pipeline to do their bit, opening up more offers to retail investors.
By revising the rules on the documents companies need to produce before a public offer, it should make it simpler for them to open up secondary capital raising round to retail investors. The threshold rule change for when a prospectus is required for a listed company to raise more shares is considerable. It has increased to 75% of existing share capital, up from its current 20% level. The FCA estimate this could reduce costs for UK companies seeking new funds by an estimated £40 million per year, money which can be ploughed back into investing and growing the company.
The FCA wants to get the IPO pipeline moving again, revitalising what has appeared to be the lethargic nature of the listing process. The length of time between a prospectus being issued and an initial public offering is being halved, to help fast track new listings. The new rules will also mean that companies will be able to issue corporate bonds to retail investors more easily, given that they mean that only a single disclosure standard will be needed, reducing costs for companies and enabling bonds to be issued in smaller batches.
One of the big challenges faced by companies hoping to raise capital was knowing where to look and which levers to pull. The lack of a centralised funding platform made it a much harder slog. So, the establishment of public offer platforms marks a big step of progress. Companies will be able to use the platform to offer big chunks of bonds or shares without needing to compile a costly and lengthy prospectus. Crucially, offers will also be available to retail investors via authorised firms. The public are used to the crowdfunding concept so this should help spark the imagination and revitalise interest in investing.
By fostering a retail investment culture and making UK markets a more attractive place for listings, it will help build a more dynamic and equitable financial ecosystem. It’s still not going to be easy to compete against the might of New York, but with continued collaboration across the industry, these changes should provide more fuel to power an engine of growth and innovation.‘’
