The Association of British Insurers, a U.K. investor lobby group, called for greater curbs on the power of controlling shareholders of companies going public to help bolster confidence in London’s equity capital markets.
Investors owning more than 30 percent of a company going public should set out how they will act to ensure the business is run independently after the initial public offering, the London-based ABI said in a statement today. Regulators should get powers to sanction shareholders if the companies don’t comply with those pledges, the ABI said.
The ABI, whose members invest more than 1.8 trillion pounds ($2.8 trillion), is pushing to overhaul Britain’s corporate governance rules after a series of controversies involving companies such as Kazakhstan’s Eurasian Natural Resources Corp. (ENRC), which while publicly traded in London is controlled by a trio of Kazakh billionaires. The U.K.’s Financial Conduct Authority plans to publish new governance rules for publicly traded companies in coming months.
“Discouraging controlling shareholders who are not willing to take on additional responsibility from listing on the London market is a good outcome for the quality of companies that list here,” the ABI said in the statement.
Overseas companies accounted for 65 percent of the $8.1 billion that companies raised from IPOs in London last year, according to data compiled by Bloomberg. That’s up from 2010, when overseas businesses accounted for 54 percent of the $13.8 billion raised through initial share sales in London.
The ABI said that at least 25 percent of a company’s shares should be publicly traded, resisting pressure from some investors to reduce that figure. Companies with controlling shareholders should also appoint an independent board a month before they announce their plans to go public, the group said.
The ABI also called on shareholders to have a greater role in determining fees paid to underwriters in IPOs and for limits on the number of banks companies hire to manage share sales.
Incentive fees should be paid to banks only three months after an offering and companies should take into consideration the stability of the share price, the allocation of shares to a predominantly long-term shareholder base and the quality of research from investment banks when awarding fees, the ABI said.
“As a rule of thumb, no more than three bookrunners should be appointed for large transactions” of more than 250 million pounds, the ABI said. Smaller IPOs should have no more than two bookrunners, it said.
To help give investors more information, companies going public should meet potential investors as much as a year before an IPO, and a draft prospectus should be published a week sooner than at present, the ABI said. The FCA should also loosen restrictions to allow more analysts to publish research on companies going public, the group said. Analysts at firms that aren’t involved with a company’s IPO should be able to write about that company.
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