By Josh Yelland
At this year’s ‘Finance in Cornwall’ event, we have Claire Dorrian of the London Stock Exchange’s presenting.
I am aware of a (small) number of businesses in Cornwall and Isles of Scilly who have cited an AIM listing as part of their future growth/ funding strategy, so I hope Claire’s presentation will be directly relevant to them. For others in the audience, I suspect the presentation will be interesting (and who knows, may even get them thinking…)
Through my work here, I have become aware that another of PKF firms, PKF Littlejohn LLP, have direct experience of assisting clients with listings and they have kindly shared with me two relevant articles that I have converted into posts for our blog.. This is the first of the two – based on text from Laoise McGarry of PKF Littlejohn LLP in which she comments briefly on AIM and looks at a Main Market listing as an alternative to AIM, but also introduces some terminology, concepts and requirements that will be useful for anyone starting to explore this area.
AIM as the default route for smaller entities, however…
“For a company considering listing for the first time, an AIM placement may seem like an obvious choice given its simplified regulatory environment specifically tailored for small and emerging companies. However, it is not necessarily the only or best option available.
Since its launch in 1995, the AIM market has attracted over 3,600 fast-growing companies from across the globe and is often considered to be the default route for smaller entities wanting to raise capital on the London Stock Exchange. However, we have noted a number of companies that have started to look towards the Main Market for their initial public offerings (IPOs) over the last few years, which is significant because the choice of market can have a major impact on a business’s future growth prospects.
What is the Main Market?
The Main Market operates the ‘Premium’ and ‘Standard’ listing regimes for both UK and overseas companies. We will focus on the latter in this article. Prior to 2009, only companies incorporated outside of the UK were eligible for a Standard Listing; however, following a change in rules, the Standard List option is now open to all companies regardless of domicile. There are currently over 1,400 companies with listed securities on the Standard segment from around 90 different countries.
A Standard Listing covers issuance of shares, global depositary receipts (GDRs), debt and securitised derivatives. While a Premium Listed company must comply with the UK’s ‘super-equivalent’ rules along with the UK Corporate Governance Code, a Standard Listed company is required to comply only with the less onerous EU minimum standards. In this way, a Standard Listing provides a company with a route to list its securities on the Main Market, while enjoying lighter compliance standards.
Benefits of a Standard Listing?
- Public listing on the prestigious Main Market of the London Stock Exchange
- Prospective investors can refer to a UK Listing Authority (UKLA) approved prospectus when deciding whether to participate in a Company’s IPO
- No trading history required to list
- Suitable for issuers who do not receive sufficient benefit from the costs of maintaining a Premium Listing
- Once listed, it is not necessary to gain shareholder approval for significant or related party transactions.
What are the compliance requirements?
There are some minimum requirements a company must meet in order to qualify for a Standard Listing: it needs to have an expected market value of at least £700,000 at admission, at least 25% of shares have to be floated, and there must be sufficient working capital for at least 12 months from the date of prospectus. All new applicants will need to publish a prospectus, which is then vetted and approved by the UKLA.
Once listed, the company will need to meet several ongoing reporting requirements;
- Annual financial report (EU-IFRS) to be issued within four months following the year end
- Interim financial (half yearly) report to be issued within three months following the period end
- Interim management financial statements to be issued during the first and second six month periods of the financial year
- Other inside information to be disclosed to the market, without delay
It should also be noted that if a listed company wishes to execute a Reverse Takeover, readmission to the market (including a new prospectus and shareholder approval) will be required. If the company is issuing further equity shares exceeding 20% of existing shares over a 12-month period, a new prospectus is also required.
What do you need to consider?
A company’s current financial position and future financial requirements will steer the decision as to which market it chooses for a listing. Financial due diligence is therefore likely to be required as part of the typical process on route to market. The extent of this due diligence will depend on the company’s advisors, and usually includes preparation of the following;
Accountant’s Report on Historical Financial Information – a company will typically need to include its Historical Financial Information (HFI) for three years within its prospectus. It is market practice for an Accountant’s Report to be issued over the entire HFI, equivalent to a three year Audit Report.
Accountant’s Report on Pro Forma information – A Pro Forma illustrates the effect of the IPO, recent transactions, a reorganisation, or other information not reflected in the HFI. An Accountant’s Report will be required to be issued over the accuracy of the Pro Forma included in the prospectus.
Review of working capital forecast and corresponding letter of comfort – It is unlikely that a profit forecast will be included in the prospectus, however a review and private report is usually expected.
Review of Financial Position and Prospectus Procedures Report (FPPP) and corresponding letter of comfort – The FPPP report will outline the company’s reporting procedures and controls, essentially to ensure the company is prepared to meet its reporting obligations once listed, as outlined above.
Other Comfort letters as required to assist with verification of residual financial information included in the prospectus.”
It goes without saying that professional advice should obtained prior to seeking any listing on the London Stock Exchange.
Finance in Cornwall 2019
As I said at outset of this post, we are pleased to have Claire Dorrian, UK Equity Primary Markets – London and the South, London Stock Exchange presenting at ‘Finance in Cornwall’ 2019.