In London, Reining in Foreign Tycoons May Hurt IPO Fees

Over the past decade, London became a second home for foreign billionaires who made their money in natural resources and were attracted by the U.K.’s stability and flexible tax laws. Their companies soon followed: Commodities empires, including Kazakhstan’s Eurasian Natural Resources (ENRC) and India’s Essar Energy, held initial public offerings on the London Stock Exchange. The IPOs provided steady work for London’s bankers and lawyers.

The trend has put U.K. regulators in a bind. Financial and boardroom controversies at some businesses controlled by foreign tycoons suggest they act as if their companies are private, investors and analysts say. Regulators have responded by proposing to rein in dominant shareholders, although they’re stepping carefully so as not to drive away foreign companies, which account for more than half of London banks’ IPO fees. “The proposed measures may succeed in curbing questionable corporate governance practices,” says Christopher Laing, Deutsche Bank’s managing director for equity capital markets for emerging countries. “But [they] may also result in companies opting for destinations that don’t have as many rules governing IPOs.”