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IPO MARKET IN THE UK

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IPO MARKET IN THE UK

By Andrew Hart, corporate lawyer in the international law firm Bryan Cave LLP.

Andrew Hart

Andrew Hart

Macro-economic factors and global political events have a huge impact on both the appetite for pursuing IPOs and the market reception of those who choose to do so. If investor confidence is undermined by the economic and political landscape then companies seeking investment will have little choice but to pursue alternative ways to raise capital, consequently stalling IPO activity. This scenario played out in the London IPO market in 2015, where the number of IPOs fell from 137 in 2014 to 92 in 2015. The value of proceeds raised also decreased by around 16% in the same period, according to PwC’s ‘IPO Watch 2015’ report. This followed a strong 2014, which was the most successful year for IPOs in Europe since 2007, with 137 IPOs on the LSE raising a total of €19.4 billion, as per PwC’s ‘IPO Watch 2014’ report. With 2016 having so far followed the 2015 trend, this article will analyse the reasons why the IPO market remains flat and consider the outlook for the remainder of the year.

Global economy

China

As the second largest global economy, the strength of the Chinese economy has an inevitable impact on the economic health of the rest of the world. China has been a huge success story, achieving significant year on year GDP growth. This boom helped to support the success of many countries and companies both in China and across the world. However, 2015 saw China’s growth slow significantly, with GDP predictions falling below 7% for the first time in many years. In July 2015, it was reported that the total value of Chinese-listed equities had fallen by around $4 trillion. As the economy has contracted companies have struggled, particularly those dependent on high commodity prices. As a result, the Chinese government has taken an interventionist approach; support was increased for sub-sovereign entities, 1,400 companies were allowed to suspend their shares from trading, and IPOs were suspended. This has contributed to decreasing investor confidence and increased volatility in stock markets around the world.

Interest rates

Following the global economic crisis, many western central banks have employed an expansionary monetary policy with consistently low interest rates and quantitative easing programmes. Following the US Federal Reserve’s increase in interest rates in 2015 (for the first time since 2006) many felt this would set the trend for rate rises across the globe, something which has traditionally been thought to be bad for equity markets as investors shift funds to debt to take advantage of the higher rates.  However, whilst this may have had some impact on IPOs in the early part of 2015, it cannot be considered to be a major cause of the current malaise in the IPO market.The widely held view for some time now has been that no (or possibly downward) movement in interest rates is the more likely scenario in the short /medium term.

Political uncertainty in the EU

2015 and 2016 have been characterised by political uncertainty which, in turn, causes jitters in financial markets. In Europe, it was reported that the migrant and refugee crisis saw over one million migrants and refugees enter Europe in 2015, which heightened political tensions as the debate on how to deal with this crisis ensued.

A number of significant elections also occurred in 2015 (including the UK general election and regional elections in France). The outcome of these elections were harder to predict than ever, causing increased uncertainty as to how the policies of the next regime will impact on business.

Significant uncertainty has also arisen following the UK government’s announcement of an in-out EU referendum, to be held on 23 June 2016. The specific consequences of a “Brexit” for potential IPO candidates are unknown at this stage, but it is inevitable there will be significant regulatory changes as the vast majority of legislation which applies to listing a company in the UK, and its continuing obligations once listed, are derived from EU law. A leave vote may also mean that the UK would no longer qualify for the EU “passporting” regime, which currently allows an IPO prospectus approved by the UK Financial Conduct Authority to be used for equity offerings in other member states.

Outlook for 2016

So, what is the forecast for the London IPO market in 2016? It has been a slow start even compared to the relatively low figures of 2015, with the volume of IPOs down 33% and IPO value down 47% compared with Q1 2015, according to figures from PwC’s ‘IPO Watch Q1 2016’ report. Until there is more economic and political stability it remains difficult to predict when IPO activity in London will return to anything like the levels seen in 2014.

However, there are signs of improvements in some recent economic indicators (such as job data and commodity prices) and a soft landing for the Chinese economy is now being predicted. In Europe, the ECB has announced an economic stimulus package which is likely to support growth in the longer term. In addition, the AIM market, whilst still relatively low in terms of the number of IPOs, is demonstrating that the demand for shares in quality corporates remains strong (only two of the 15 AIM floats in 2016 have failed to make gains since listing).

Therefore, whilst crystal ball gazing is always hard, a recovery of sorts for the IPO market in the second half of 2016 cannot be ruled out. This is likely to be the case particularly in the event of a remain vote in the UK EU referendum ending uncertainty over the regulatory landscape overnight with still plenty of time left before the end of the year to start and finish an IPO.

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Reuters Events Launch Global Investment Summit Online Edition Uniting Institutional Investors, Asset Owners & Financial Institutions

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Reuters Events – today announced the agenda for their Global Investment Summit (Dec 3rd -4th). The 2-day strategic summit has been reimagined in the era of social distancing and will be broadcast free of charge to the public.

This Summit, with a diverse range of international voices and anchored by Reuters News-led sessions, is the only place for institutional investors, asset owners and financial institutions to come to terms with the events of 2020.

Click for more information and for complimentary registration to the online edition

The Energy Transition team report an industry leading speaker faculty for 2020, including:

  • Eileen Murray, Chair, Finra
  • Philip Lane, Chief Economist, European Central Bank
  • Gregory Davis, Chief Investment Officer, Vanguard
  • Hanneke Smits, CEO, BNY Mellon Investment Management
  • Pascal Blanque, Chief Investment Officer, Amundi
  • Desiree Fixler, Group Chief Sustainability Officer, DWS
  • Joe Lubin, CEO, Consensys
  • Bahren Shaari, CEO, Bank of Singapore
  • Mark Machin, CEO, Canada Pension Plan Investment Board

The agenda released by Reuters Events Investment is both ambitious and comprehensive, and will cover four key themes: Market Outlook, Asset Management Strategies, Industry Deep-Dives and the Future of Investment.

View the full agenda here

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Halliburton & Baker Hughes CEO’s join Reuters Events: Energy Transition 2020

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Reuters Events – today announced that CEO’s of two of the world’s leading energy service companies, Halliburton and Baker Hughes, will join the speaker faculties for their flagship Energy Transition Summit.

The event will explore the creation of the future energy ecosystem and offer companies, from across the asset spectrum, a definitive guide to their net-zero strategies. The alignment of the two biggest O&G global service companies, Halliburton and Baker Hughes, represents a significant step in the transition to low-carbon energy

More information on the Europe and North America editions can be found below. Registration for the LIVE stream is free.

Alongside their CEO speaker representation, Halliburton join as Platinum sponsors of the North American edition. Baker Hughes join as gold sponsors for the European edition of the flagship energy transition program.

The Energy Transition team report an industry leading speaker faculty for 2020, including:

  • Lorenzo Simonelli, Chairman & CEO, Baker Hughes
  • Jeff Miller, CEO & President, Jeff Miller
  • Tristan Grimbert, CEO, EDF Renewables
  • John Pettigrew, Chief Executive, National Grid
  • Pratima Rangarajan, CEO, OGCI Climate Investments
  • Alex Schneiter, CEO & President, Lundin Energy
  • Gretchen Watkins, President, Shell Oil Company
  • Calvin Butler Jr., CEO, Exelon Utilities
  • Francis Fannon, Assistant Secretary ERB, S. Department of State
  • David Lawler, Chairman & President, bp America
  • Andreas Schierenbeck, CEO, Uniper

More information on the Europe and North America editions can be found below. Registration for the LIVE stream is free.

Governance & Cooperation – Does the energy transition face a ‘governance deficit’? To understand how the energy transition will develop over the next decade, it is crucial to understand the driving governing forces behind it. Will the Green Deal provide the first domino, how can we ensure progress in the shadow of Aberdeen and ensure that we translate targets into action?

Financing Energy Transition – We must address the elephant in the room; who is going to pay for it all? An understanding of where the funds are likely to come from is key to staking claim to the infrastructural projects that will redefine the modern world in the 21st century.

New Energy Infrastructure – Low-carbon energy supply and consumption will need a radical overhaul of infrastructure. As well as revamping the old, we’ll need entirely new assets and new systems of energy delivery. It’s an unprecedented opportunity with estimated spending at $70 trillion over the next decade. Knowing which technologies are ready to be scaled first is the key to understanding opportunity

Business Model Innovation – Who will provide leadership through the age of transition and how do we want our future energy system to look? Speed and timing will be crucial if you are to stay on the right side of the transition. Join us in setting business led, evidence based, targets as industry drives towards net-zero

More information on the Europe and North America editions can be found below. Registration for the LIVE stream is free.

At Reuters Events, we’re committed to tackling the Energy Transition head on; to shed light on the defining issue of our time and help energy companies meet a uniquely difficult challenge. That is, to be both an energy company of today, and the energy companies of tomorrow. In a period that will be defined by uncertainty we can, together, lighten the way forward.” – Owen Rolt, Head of Energy Transition, Reuters Events

Contact

Owen Rolt

Head of Energy Transition

Reuters Events

UK: +44 (0) 207 375 7596

E: [email protected]

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COVID-19 is changing people’s preferences when it comes to BTL investments

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COVID-19 is changing people’s preferences when it comes to BTL investments 1

By Jamie Johnson, CEO of FJP Investment

Throughout 2020, investors have had to navigate increasingly treacherous and volatile market conditions as a consequence of the COVID-19 pandemic. No country has been immune to the coronavirus outbreak, particularly here in the UK.

Yet even as the country enters another phased lockdown of sorts, demand for UK property has remained strong. After a brief period of suppressed demand after initial lockdown measures were introduced in late March, the UK’s implementation of the stamp duty land tax (SDLT) holiday triggered a rush in demand for bricks and mortar. As a result, both house prices and transactional activity is rising.

With this new surge in demand resulting in an 18-year-high of UK house price growth, according to the Royal Institute of Charted Surveyors, buy-to-let (BTL) investments have also substantially increased in popularity.

It’s easy to understand why. BTL investments offer landlords both long-term capital growth and regular returns in the form of rental payments. And now, as the SDLT holiday deadline beckons closer, investors keen on taking advantage of the comparative discounts on offer must act quickly.

My advice to those considering a BTL investment in the UK is to understand and appreciate the longstanding market changes that have been brought about by COVID-19. Traditional BTL hotspots are being challenged by a rise in tenant demand for real estate in up-and-coming cities and regions.

For example, the COVID-19 pandemic has resulted in the majority of the workforce working remotely from home. Recent data from property listing site Rightmove makes clear the shift in demand away from central London and towards less densely populated regions; with areas like Cambridge and Oxford seeing 76% and 64% more rental searches respectively and searches in areas like Earl’s Court dropping by 40%.

This is the clear result of previously London-based professionals realising the benefits of working from home. As businesses identify the financial drawbacks and COVID contagion risks of having all their staff physically present five days a week, employers will seek out smaller commercial workspaces.

At the same time, we are also seeing workers looking to rent larger, cheaper properties that might be further away from their office. This is due to the fact that they are unlikely to need to commute every working day to their office, even once the COVID-19 outbreak has been contained.

But, where exactly are the best larger, cheaper properties to be found? Where are the UK’s emerging BTL hotspots that need to be on the radar of prospective investors? I explore these pertinent questions below.

Liverpool life

Those who have been closely following the UK’s housing market will know just how primed Liverpool is for BTL investment. As a key recipient of the UK Government’s Northern Powerhouse funding, and with massive developments like Liverpool Waters and Wirral Waters soon to be completed, the city’s housing supply is ready to meet the demands of those taking part in the aforementioned London professional exodus.

With Liverpool constantly ranking No.1 in rankings of UK cities for BTL investment, it’s evident why investors would be keen on completing purchases of Liverpool property before the end of the SDLT holiday. Though even after the SDLT holiday ends, there’re still plenty of reasons to be optimistic about Liverpudlian BTL investment. Prime Minister Boris Johnson’s government is firmly committed to ‘levelling up’ the North of England through regional regeneration, and planned high speed rail connections between Liverpool and other northern cities will only add to the investment potential of the city.

Leeds living

Although Liverpool boasts the highest rental yields for BTL landlords in real terms, Leeds was recently named the most profitable city to become a landlord in the whole of the UK by CIA landlord. By evaluating numerous metrics; including mortgage costs, average rent, average monthly landlord costs and average property prices, they determined that Leeds was the best city for potential buyers to make their first foray into BTL investment.

And, looking at recent trends, it’s easy to see why. Leeds may benefit more from the London exodus than other cities due to its unique position of being a brain gain city’, i.e. one where more students remain after graduation than move away. As a result, it boasts the largest financial services sector in the nation after London, making it an ideal locale for employers in the financial services sector who are seeking cheaper commercial rent outside of London; likely bringing investment and employees with them.

With its strong urban economy likely to be bolstered by its designation as a ‘Northern Powerhouse’ leading business hub, Leeds is ideally positioned for BTL investment over the long-term.

Cardiff’s regeneration

And finally, the capital of Wales brings much to the table when deciding between different BTL investment destinations. With a metropolitan area population of over 1.1 million residents, forecasted to grow by 20% by 2035, demand for property in the city is set to rapidly increase over the next decade. Those able to capitalise on this population growth will be able to access considerable long-term investment opportunities – as recent reports suggest.

Thankfully, it’s unlikely that there’ll be any shortage of housing supply in Cardiff for BTL investors to invest in. Cardiff Bay has emerged as Europe’s largest waterfront development, and the upcoming Central Quay and £500m coastal developments will assist in attracting further investment into the city.

BTL remains a sound investment opportunity

COVID-19 has made evident just how resilient British real estate is as an investment asset. By offering the best of both worlds, namely long-term capital growth and regular rental returns, BTL has successfully remained an attractive and popular investment choice. And, with demand for housing still outstripping supply, the market need for rental accommodation looks set to only grow.

COVID-19 has permanently changed the UK’s housing market and, as explained above, new BTL hotspots are surely due to emerge over the next year. With renters seeking out larger homes in cheaper areas, flexible working patterns will forever change the landscape of the UK’s residential real estate market, and those able to capitalise on it may benefit hugely as a result.

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