London Moves to Revive Its Reputation as a Financial Hub

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.

Jeremy Hunt, Britain’s top finance official, has reportedly courted Shein, anticipating that a major I.P.O. would bolster London’s standing as one of the world’s leading financial centers. A spokeswoman for Shein declined to comment; the British Treasury also declined to comment.

By many measures, London is still a crucial financial hub, where prices are fixed each day for precious metals, trillions of dollars of foreign currency are traded and global insurance contracts are written. 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 I.P.O. 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.

“London used to be recognized as the center of the finance world,” he said. “We know that is no longer the case, and that has been exacerbated by the fact that we’ve left the E.U., and so there is a reduced number of trading, in terms of volumes, in London. And so that also reduces some of the clout the market has.”

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 I.P.O.s. 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 I.P.O. 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 I.P.O. in London’s history.” (Its shares are down 63 percent from their peak.)

“The rule change that’s going on right now is saying we need to make ourselves much more attractive to tech businesses, particularly start-ups, particularly businesses that don’t have a long track record of profitability,” Mr. McCubbin said. It’s about companies that build on “what does the next 10 years look like, not what did the last 10 years look like.”

But advisers caution that companies considering an I.P.O. in New York must have some natural link to the U.S. 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.

That said, the companies that went public in New York last year raised a collective $9.5 billion, while those in London raised $442.7 million, according to London Stock Exchange Group data. Still, even though London struggles to compete with New York, it is a much more popular destination than its European neighbors, like Paris and Amsterdam.

The British government has announced a series of reforms in the past few years to entice companies, particularly tech start-ups, to raise capital through an I.P.O. in London. For example, Britain reduced the number of shares a company is required to have in public hands to 10 percent from 25 percent and allowed certain dual-class listings on the premium segment of the market, changes that are intended to encourage tech founders who might want to retain greater control of their company after an I.P.O.

Other planned changes are expected to make it easier for companies to make big acquisitions or other transactions without getting shareholder approval.

“We’ve seen a couple of reforms already in place, but the vast bulk are either in flight at the moment or planned but yet to come,” said Julie Shacklady, a director at UK Finance, a trade group. “So we are not really seeing yet the benefit of the totality of the reforms.”

But she said she had “cautious optimism” about a rebound in the market later this year and did not expect that an election, even if it led to a new government, would derail the changes.

In the case of Shein, the company has said part of the reason to go public is to be more transparent in the face of accusations of poor labor and environmental practices. London is considered to have high standards for companies, with strict reporting requirements and new sustainability rules.

Beyond Shein, deal makers and London market boosters point to other promising news for the British exchange. Raspberry Pi, a maker of low-cost computers, said it planned to go public on the London Stock Exchange.

One corporate adviser said an array of companies owned by private equity firms — which regularly take the businesses that they own public, providing a regular source of listings — might hit the London exchange starting next year.

As companies are debating whether to list in New York or London, Mr. Hunt and Bim Afolami, a Treasury minister, met with tech companies this month to promote Britain as a place to raise money.

“For a couple of years we’ve beat ourselves up, but actually this year we are very optimistic that we’ve really turned a corner,” Mr. Afolami said at an event in London this month.

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