British govt moves to revive London’s reputation as financial hub

By Eshe Nelson & Michael J de la Merced

 

As fears have grown that the city is losing its attractiveness for publicly traded businesses, Britain’s government is making changes to bring them back.

Shein, the online retail giant founded in China, had grand ambitions to go public in New York. But as relations between Washington and Beijing soured, the ultrafast fashion company began taking a closer look at a backup plan across the Atlantic.

The company is now focusing more on the London Stock Exchange for its initial public offering, according to two people with knowledge of the matter. That may not have been the company’s initial choice — but it would be a big win for Britain, which has been wary of its capital city losing its status as a global financial hub.

By many measures, London is still a crucial financial hub, where prices are fixed each day for precious metals and trillions of dollars of foreign currency are traded. But the global competition for investors — among cities like New York, Hong Kong, Dubai and Singapore — is intense. Stock listing is a prominent business, and a big IPO like Shein’s could be seen as a prize that bolsters the local financial market and sets the stage for other companies to follow. In an effort to shore up London’s position, British officials are trying to overhaul the financial sector to make the city’s stock market more attractive to modern industries, particularly tech companies, rather than relying on the sectors, such as banking, that historically built London’s financial sector.

London’s reputation for financial services also took a hit after Britain’s exit from the European Union, amid concerns that banks would move money and workers to the continent. Some of those fears were overblown, but Brexit has taken a toll. Amsterdam, for example, overtook London as Europe’s largest share-trading center about three years ago, according to Cboe Capital Markets.

The emphasis on attracting public listings to London is partly due to pride, said Gbenga Ibikunle, a professor of finance at the University of Edinburgh Business School.

Aside from pride, analysts say, there are good economic reasons to have a healthy pipeline of listings. For one, they support a range of financial and professional service jobs, from bankers to lawyers. Public companies are also open to greater scrutiny, which can give more insight into the state of the economy.

Fears that London is losing its attractiveness for publicly traded businesses have grown over the years, as several companies, including the construction materials company CRH and the betting operator Flutter Entertainment, shifted their primary listings to New York from London. Others, like the oil giant Shell, have acknowledged studying the idea. Those departing have not been replaced by a wave of companies going public, either. Last year brought a significant blow as Arm, the British-born computer chip company, listed its shares in New York. That offering, the largest in 2023, raised nearly $5 billion.

New York has been a long-running destination for IPOs. Many in the financial industry point to concerns that the London market, with less trading volume, leads to lower valuations than the New York exchanges can provide.

There is an advantage to being listed alongside similar companies on the same exchange because the rising tide pulls in more analysts and investors focused on those stocks, said Scott McCubbin, who leads EY’s IPO team in the United Kingdom and Ireland. Part of the problem, analysts say, is that the London Stock Exchange is dominated by companies from older industries, such as banking, mining and oil and gas. Britain has struggled to attract listings of tech companies, and prominent flops have compounded the problem. Deliveroo, a London-based food delivery company, went public in 2021 and was called “the worst IPO in London’s history.” (Its shares are down 63 percent from their peak.)

But advisers caution that companies considering an IPO in New York must have some natural link to the US market to benefit from trading there. Flutter, for example, generates more than a third of its revenue in the United States. Otherwise, investment fund managers would have little incentive to focus on smaller British companies over bigger ones more relevant to Americans.

The slowdown in London offerings is part of an industrywide paucity that has stretched on for more than a year amid high interest rates, conflicts and geopolitical uncertainty. Just 16 companies went public in New York last year, down 84 percent from 2022, according to the London Stock Exchange Group; by comparison, 10 companies went public in London, down 88 percent.

> British officials are trying to overhaul the financial sector to make the city’s stock market more attractive to modern industries, particularly tech companies

First Published: May 28 2024 | 11:07 PM IST