- The recent UK Listing Review has proposed changes to the UK’s listing rules and prospectus regime. This is seen as a positive step in bringing the UK equity market in line with more attractive non-UK financial centres, particularly the US.
- One of the key recommendations is to relax rules for special purpose acquisition companies (SPACs), so that trading is not suspended once a potential acquisition is announced.
- Financial Conduct Authority consultation is still required before any changes are brought into effect.
UK LISTING REVIEW - “CLOSING A GAP” WITH OTHER MARKETS
The UK Listing Review, chaired by Lord Hill and commissioned by Chancellor Rishi Sunak, published on 3 March 2021, has set forth a number of recommendations for amending the UK’s listing rules and prospectus regime. The proposals are intended to make the London Stock Exchange a more attractive listing venue for special purpose acquisition companies (“SPACs”) and technology companies, and to enhance the City’s post-Brexit standing. Lord Hill stated that the proposals are concerned with “closing a gap which has opened up” with respect to other markets.
KEY CHANGES TO SPAC AND TECH LANDSCAPE
The proposals are aimed at attracting high-growth technology companies and SPACs. SPACs have gained significant popularity in the US markets, in part due to the relatively low risk of such transactions to investors, where shareholders in US-listed SPACs are typically able to vote on the acquisition of the target company and can redeem their shares immediately at the time of the business combination if they do not agree to the acquisition. By contrast, the UK SPAC market is considered to lag behind. In 2020, there were only a handful of SPAC listings in the UK, as opposed to 248 SPACs raising $83.4 billion in the US, a number that is expected to be even larger in 2021.
The key features of the new proposals are set out below.
- No suspension of trading. Under the current regime, SPAC transactions are classified as reverse takeovers, whereby shares in SPACs are suspended from trading when the SPAC announces a deal with a target under the UK listing rules, which restricts the ability of investors to exit, even if they do not approve of the business combination. This is seen as a key impediment for SPAC listings in London. Under the proposed new rules, the trading of the SPAC’s shares would no longer be suspended after a deal’s announcement. Investors would also have some additional protections, including the right to vote on the acquisition and being able to redeem initial investments.
- Dual-class share structures. It is proposed that companies with dual-class shares should be permitted to list in the premium listing segment, which would allow founders to retain greater control following initial public offerings. This is subject to conditions concerning corporate governance standards, including a maximum transition period of five years during which the founder would be engaged in running the company and able to exercise its control rights, and a requirement that holders of voting Class B shares (which would have weighted voting rights) be directors of the company. At the end of such transition period, companies would be required either to become subject to the premium listing rules in full (i.e., having a single class of shares issued) or move listing segment, for instance to the standard segment, which permits such companies to retain their dual-class share structure.
- Share requirements for free floats. The proposals seek to reduce the free float requirements in both the premium and standard listing segments from 25% to 15%. This would mean that founders of companies could hold on to a bigger stake following listing. Under the proposed rules, there would be flexibility on the measures of liquidity used by companies, and they would not need to rely only on the free float percentage.
WIDE-RANGING PROPOSED REFORMS
The proposals include a number of other reforms and considerations:
- Amending the liability regime for issuers (including SPACs) and their directors, to facilitate the inclusion of forward-looking financial information in prospectuses;
- Reviewing the provisions on revenue earning requirements in the premium listing segment applicable to scientific research-based companies to broaden their application to other high growth, innovative companies;
- Amending the premium listing eligibility requirement that historical financial information should cover at least 75% of an issuer’s business for three years, so that the percentage threshold applies only to the most recent financial period;
- Redesigning the prospectus regime, with the proposals recommending treating admission to a regulated market and offers to the public separately;
- Allowing companies to be index-eligible on a rebranded and remarketed standard listing segment;
- Reviewing the rules requiring connected analysts to delay publication of their research for seven days following the issuer’s “intention to float” announcement and publication of its registration statement if unconnected research analysts have not been given equal access to the issuer’s management during the private phase of the IPO. The Financial Conduct Authority (the “FCA”) had introduced this requirement to the UK IPO timetable in 2018 to promote the availability of unbiased, independent research; and
- Charging the FCA with the duty to take into account the UK’s overall attractiveness as a place to do business. This could entail permitting the regulator to act more decisively and swiftly in the face of changing market dynamics and amending its statutory objectives to include a requirement to consider ‘competitiveness’ or ‘growth’ factors.
The proposals put forward by Lord Hill would require approval from the FCA, which intends to publish a consultation paper by this summer.