On 11 July 2013, the ABI published the findings of its extensive review of processes for initial public offerings (IPOs) and secondary capital raisings in the UK public market.  The ABI Report follows a government-funded independent review by Professor Kay (released July 2012), which examined investment in UK equity market and its impact on the long-term competitive performance and governance of UK quoted companies.  As institutional investors with in excess of £1.8 trillion of funds under management, ABI members have a strong interest in ensuring the continued health of the UK equity market.

The ABI, whose guidance is influential but non-binding, concluded that the UK model remains functional and competitive, but highlighted several areas that can be improved to increase the efficiency of the process and the attractiveness of the London market.  Some of the main recommendations are summarised below.  The full report can be accessed on the ABI’s website.

1. Initial public offerings:

  • Information asymmetry.  Issuers should engage potential investors up to a year or more before a planned IPO in order to re-balance information asymmetry that exists in favour of issuers at the expense of investors.
  • Early prospectus.  A UKLA-approved prospectus should be issued at least one week earlier that the pathfinder or price-range prospectus.  Prospectuses should, in general, be more succinct and contain less generic information.
  • Syndicates.  As a general rule, no more than three bookrunners should be appointed for large transactions (>£250 million) and no more than two bookrunners for smaller transactions.
  • Liability of shareholders.  Controlling shareholders (being a shareholder, or shareholders acting in concert, with holdings of 50% + 1 pre-IPO) should be liable for the prospectus for companies seeking a premium listing on the Main Market of the London Stock Exchange.
  • Relationship agreement.  A relationship agreement should be required between controlling shareholders and the issuing company.  The agreement should place an obligation on the controlling shareholders to comply with statements in the prospectus for which they have accepted responsibility and it should be publicly available.
  • Free float.  The minimum free float for premium and standard listings on the Main Market should be maintained at 25%.

2.  Secondary offerings:

  • Pre-emption.  The ABI continues to emphasise the importance of pre-emption rights and believes that greater clarity is required as to when non pre-emptive offers are acceptable to investors.  The Pre-Emption Group should be reconvened to consider its Statement of Principles in light of market practice, in particular in relation to:
    • the limit for placings for cash (including aggregate issuance over a time period greater than one year) and for vendor placings, as well as associated discounts;
    • the acceptability of the cash-box when not used directly as acquisition linked financing;
    • acceptable levels of capital raised and associated discounts for open offers;
    • the reference price when calculating discounts and whether fees associated with issues should be included; and
    • the application of the Principles or associated guidelines to standard listings and to AIM.
  • Fees and discounts.  Issuers should utilise deep discounts in rights issues to reduce the level of underwriting fees.  The gross spread for rights issues and open offers should be unbundled (i.e., amounts of advice, primary underwriting and sub-underwriting are shown separately).
  • Disclosure of fees.  Unbundled fees should be disclosed fully in any offering documents on a disaggregated basis.
  • Timetable.  The UKLA should investigate the possibility of a fast-track review process for time critical offerings.  Timetables for pre-emptive offerings could be reduced by eliminating the need to distribute physical documents and reducing the time needed by custodians to enact their client’s instructions to exercise.