WHY TO SEEK LISTING?
CHAPTER 1 Advantages:
FLOTATIONS 1. Access to capital – Flotation is a way of bringing an injection of
capital to the company which can be used to expand or to pay
INTRODUCTION: off debt. A company gains new shareholders as a result which
will be a source of funding for the company.
FCA Handbook Regulated market = includes the Main Market of the
London Stock Exchange, but not AIM. 2. Providing a market – Unquoted companies have no access to a
FSMA Regs Prescribed market = includes the Main Market and AIM. market for shares. By becoming a listed company, the company
and shareholders will be able to ready-made public markets and
CA 2006 Quoted company = includes a company whose shares are listed this will also enable employee shareholders to sell their shares
on the Official List (= the Main Market). or invest in further shares.
Part 13 CA 2006 Traded company = a company any shares of which carry
rights to vote at GMs and are admitted to trading on a regulated market. 3. Listing comes with a public profile – The publicity created by a
flotation will bring in new clients/buyers. Accounts showing
Relevant authorities: financial performance will become public, attracting investors.
The FCA: Disadvantages:
1. Applying for/maintaining a listing is costly/time-consuming.
Financial Conduct Authority (FCA) = UK financial services regulator The total fees of all advisers is too high.
responsible for the conduct of FSMA authorised firms and the regulation
of conduct in the retail and wholesale financial markets. 2. Management time – The process is complex and directors must
dedicate all of their time to flotation for several months.
s.1B(6) FSMA 2000 FCA's general functions are to:
* Make rules under FSMA 3. Extensive disclosure/reporting requirements – Companies
* Make technical standards listed on the Main Market must comply with the LPDT Rules,
* Prepare and issue codes and general guidance under FSMA Listing Rules (LRs), Market Abuse Reg (MAR) and LSE’s Admission
* Determine the general policy/principles under FSMA and Disclosure Standards. – eg. a company must disclose
facts/events that could influence the share price.
The FRC:
4. Changes to the board – Potential investors expect all directors
Financial Reporting Council (FRC) = independent regulator responsible to have appropriate experience and expertise. Finding expert
for promoting confidence in corporate reporting/governance. non-executive directors may be difficult/costly. In addition, Main
Market listed companies must comply with the CGC and this may
Documents published by the FRC: result in changes to the board/new directors.
1. UK Corporate Governance Code (CGC) – latest version was
published in Jul 2018 and available here. 5. Loss of control – Directors will be subject to new pressures on
2. UK Stewardship Code – took effect from 1 Jan 2020 is and how they run the company. Institutional investors with high
available here. shareholdings may be able to block resolutions. In addition,
listed companies must follow the guidelines of bodies that
Private, public and listed companies: represent institutional shareholders. – Investment Association
(IA), Pensions and Lifetime Savings Association (PLSA).
Private companies Public companies
A private company’s ability to Private companies’ shareholders
ADVISERS ON THE LISTING TO THE MAIN MARKET:
raise equity finance is heavily may raise further equity finance by Investment bank:
restricted by s.755 CA 2006 converting the company to a * Acting as financial adviser – advising the company on the timing
public company and offer shares and structure of the offer, marketing and due diligence.
s.755 CA 2006 It is an offence for to the public. * Acting as Lead Underwriter
private companies to offer its * Acting as Broker
shares to the public. s.90 CA 2006 The procedure for * Acting as Sponsor
this is set out. * Preparing research on the company
Broker:
Listed companies Brokers = act as agents for clients who want to buy/sell shares. They
receive a commission. They may also act as sponsors.
Listed companies = companies with shares listed on the Official List
(admitted on the Main Market of the London Stock Exchange). Sponsor:
Listing Rule 8.2.1R and 8.6.2R Applicants for premium listing must
Most investors prefer to invest in listed companies so that they can appoint a sponsor from the FCA’s approved sponsor list.
buy and sell shares freely. Thus, some companies will seek a listing
and admission to trading to raise finance – technically the company LRs 8.3-8.4 The sponsor is responsible for:
is not listed but its shares are. * Project-managing the application process
* Helping the company with its application and submitting it to the
A company must convert to a public company before applying to FCA
have its shares listed/traded. * Ensuring that the company meets the requirements for listing
* Making a declaration that it has performed its duties
AIM companies are also public companies but not listed.
LR 8.7 FCA will ensure that the sponsor continues to fulfil the criteria for
Companies that listed recently: Royal Mail in Oct 2013, TSB Banking approval and remains in compliance with the LRs.
Group plc in Jun 2014, Aston Martin in Oct 2018, Trainline plc in Jun LR 8.7.1AR and LR 8.7.3G FCA may require specified documents or
2019 and Dr Martens plc in Feb 2021. information from the sponsor and may make visits to a sponsor.
How to obtain a premium listing on the Main Market: Reporting accountants:
A company applying for a listing must appoint a firm of accountants to
A company may obtain premium listing of securities on the Main prepare its financial reports (long-form report, short-form financial
Market of the London Stock Exchange (LSE) if the Listing, Prospectus information, working capital review, various comfort letters).
Regulation, Disclosure Guidance and Transparency Rules (LPDT Rules) Solicitors:
are complied with. Company’s legal team: will be responsible for ensuring the company is
Securities = include equity and debt instruments – shares are equity prepared for flotation by preparing a legal due diligence report and
instruments, bonds are debt instruments. draft/verify the prospectus.
Primary issue = the first time that a company makes an offer of listed Investment bank’s legal team: will prepare/review documentation for
shares. Also called flotation and initial public offering (IPO). the bank. This will involve drafting the prospectus and preparing/
Secondary issue = subsequent occasions when listed shares are issued. negotiating the underwriting agreement.
Corporate finance – Workbook summary | Page 1 of 32
,Other advisers: Other facilities of CREST:
* Public relations advisers – appointed to give advice on the * If a shareholder is not a CREST member but wishes to transfer
marketing and advertising of the company. shares into CREST to sell them in a flotation, a CREST transfer
* Registrars – manage shareholder record-keeping/admin for form will be used. The shares will dematerialise on transfer.
listed companies, record share transfers, send notices to * Listed companies can effect rights issues, open offers and
shareholders and process dividends. takeover offers to CREST shareholders.
* Receiving bank – appointed to carry out administration involved * CREST shareholders can use CREST to appoint proxies and
in receiving applications for the shares, making relevant receive dividend and interest payments.
payments and allocating the shares to applicants.
PROCEDURE FOR LISTING ON THE MAIN MARKET:
PREMIUM AND STANDARD LISTING:
Two applications – Shares will be listed once:
If a company decides to apply to have its shares listed and traded on the a. Admitted to the Official List of the FCA, and
Main Market, it must apply to have its shares admitted to listing on the b. Admitted to trading by the LSE
Official List. When a company applies for listing, it can apply for its equity
shares to be subject either to a premium/standard listing. Step 1 – Preparation for a listing:
* Re-registration: A private limited company must first re-register
Key differences between premium and standard listing as a public limited company.
* Corporate Governance: Review the plc’s corporate governance
Premium Standard procedures and change areas to comply with the rules.
Which rules apply? All Listing Rules LR 14 and LR 2 Step 2 – Application to the FCA for admission to the Official List:
3-years of accounting LR 6 Yes No
history required? Chapter 3 LRs The procedure for applying for a listing is set out.
Sponsor? LR 8 Yes No
Share dealing restriction? MAR Yes MAR Yes A company must appoint a sponsor in connection with the application
Corporate governance CGC, LR 9 and DTR 7 Disclosure Guidance for a premium listing.
standard? Yes and Transparency
Rules (DTR)
Disclosure Step 3 – Application to the LSE for admission to trading:
requirements only
Inclusion in FTSE UK Index Yes No This application is made in compliance with LSE’s Admission and
series? Disclosure Standards. Whilst technically no need for a sponsor for this
Any rules on the LRs 6 and 9 Yes No application, a nominee must be appointed, and that is usually the
relationship between sponsor in practice.
company and shareholder
with 30%+ shares?
Shareholder approval LR 10 For significant No Step 4 – Conditions for listing:
needed? transactions
LR 11 For related party Both the company (the Applicant) and its shares must be eligible for
transactions listing.
May migrate from standard to premium listing and vice versa without LR 8.4.2R The sponsor may only submit to the FCA an application if the
having to cancel the initial listing. For moving down from premium to conditions have been met.
standard listing, 75% shareholder approval is needed.
Conditions relating to the applicant:
CREST: * LR 6.2.1R(1) Applicant must publish/file historical financial
information covering at least 3 years.
The company must ensure that the settlement/transfer of shares runs * LR 6.2.1R(3)(a)-(b) Applicant’s latest balance sheet date must be
smoothly once it is listed due to the large number of members. no more than 6 months before the date of prospectus and no
more than 9 months before the date of admission.
Listed companies appoint a Company Registrar that maintains an * LR 6.2.1R(4) If the applicant has subsidiary undertakings, the
electronic database of the shareholder register. The Company’s historical financial information must include consolidated
Registrar will connect to CREST so that it can receive updates to the accounts.
register. * LR 6.2.1R(2) The historical financial information must represent
at least 75% of the business and put prospective investors in a
Central Securities Depository (CSD) = institution holding shares/bonds position to make an informed assessment of the business.
and allowing share/bond ownership to be transferred electronically by * LR 6.4.1R Applicant must carry on an independent business.
updating electronic records. CREST is the UK’s CSD. * LR 6.5.4R If there is a controlling shareholder (shareholder
holding 30% or more of the votes which may be cast at a general
Uncertificated Securities Regs 2001 Listed shares can be held in a meeting, the applicant must have a relationship agreement with
dematerialised, electronic form (no paper certificate). that shareholder containing independence provisions.
* LR 6.7.1R Sufficient working capital being available for the
UK Central Securities Depository Reg (CSDR) Listed companies must group’s requirements for at least the next 12 months from the
ensure its shares must be compatible with electronic settlement date of publication of the prospectus.
(through CREST). There must be nothing in the articles preventing
electronic settlement. Share certificates are to be abolished for listed Conditions relating to the shares:
companies from 1 Jan 2023 for new securities and from 1 Jan 2025 for * LR 2.2.2R(2) The shares must be authorised by the shareholders
existing securities. * LR 2.2.3R The shares must be admitted to trading on a regulated
market.
What is CREST? * LR 2.2.4R The shares must be freely transferable.
CREST = the UK’s CSD. It is a computerised system allowing UK shares to * LR 2.2.7R The market capitalisation must be at least £700,000
be held/traded electronically. CREST is operated by Euroclear Limited. for shares and £200,000 for debt securities.
* LR 6.14.1R-LR 6.14.3R The free float requirement: 25% of shares
A transferee must pay stamp duty reserve tax (SDRT) on a CREST of the class to be listed must, no later than the time of admission,
transaction at 0.5% of consideration. This is different to a stock transfer be in public hands.
form where stamp duty (0.5%) is owed if the value is more than £1,000. * LR 2.2.9R The whole class of the shares must be listed.
* CSDR The rights attached to the shares must be compatible with
All members must appoint a settlement bank that agrees to satisfy the electronic settlement (e.g. CREST).
member’s payment obligations through CREST. * LR 2.2.10R A prospectus must be approved and published.
How can shareholders hold shares through CREST? In addition, listed companies must:
1. By being a direct user: A direct user has direct connection to * LP 1 Take reasonable steps to establish and maintain adequate
CREST. – usually banks/stockbrokers. procedures/systems/controls to comply with its obligations.
2. By being a sponsored member: A sponsored member has no * LR 7.2.2G and 7.2.3G Ensure the timely and accurate disclosure
direct link to CREST but appoints a direct user to communicate of info to the market, such as inside information.
on their behalf. * LP 2 Deal with the FCA in an open and co-operative manner.
3. By holding shares through a nominee: A shareholder can also * PLP 5 Treat holders of the same class of shares equally.
appoint a nominee. The nominee holds the shares on behalf of * PLP 6 Communicate with shareholders/ potential shareholders
the shareholder in a nominee account. The nominee is a direct in a way as to avoid creating a false market in those shares.
user and will hold legal title to the shares.
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,Continuing obligations: The CGC and preparation to list:
Once listed, a company is subject to continuing obligations. During
preparations, set up compliance systems/procedures. – eg. once listed, A company applying to list must comply with the CGC once listing. –
a company must disclose certain info to the market/shareholders. CGC provides recommendations:
* Principle G The board should have a combination of executive
Timing: and non-executive directors.
Obtaining listing will take 6 to 12 months from the time that advisers are * Provision 9 The roles of chair and chief executive should be
appointed. – timetables vary depending on the company’s size and the separated.
offer structure. * Principle H Non-executive directors should provide constructive
challenge, strategic guidance, offer specialist advice and hold
Step 5 – Methods for making a primary issue: management to account.
Share capital reorganisation: * Principle Q Companies to appoint a remuneration committee.
The company may need reorganise its share capital before flotation to
make the share price more marketable. The remuneration committee:
× Provision 32 Should have 3 members or 2 for small
s.618 CA 2006 The company must pass an ordinary resolution to sub- companies, all independent non-executive directors.
divide its nominal share capital. × Provision 33 Should develop executive remuneration
and determine director/the chair/senior managers’ pay.
Example:
XYZ plc is valued at £2mil. Its share capital consists of 10,000 shares of * Principle J Companies should establish a nomination committee
£1 each. Flotation: £2mil divided by 10,000 = £200 per share. If the £1 and develop a formal procedure for appointing new directors.
shares are sub-divided to create 100 1p shares, those 1p shares would The majority of members of the committee should consist of
be worth £2. This is a much more marketable price. independent non-executive directors.
Issue of new shares: * Principle M Companies to develop formal policies/procedures to
In addition, if the company is undertaking a primary issue, the company ensure compliance with: corporate reporting, risk management
must ensure that it has passed the necessary resolutions to carry out a and internal control principles.
share issue:
× Checking that there is no cap on the number of shares which the * Provision 24 Companies should establish an audit committee.
company can allot
× Giving the directors authority to allot the shares The audit committee:
× Disapplying pre-emption rights over those shares × Should have 3 members or 2 for small companies, all
independent non-executive directors.
CORPORATE GOVERNANCE: × DTR 7.1.1AR At least 1 member must be competent in
accounting/auditing and all members must be
LR Chapter 9, DTR 7 and Corporate Governance Code (CGC) A listed competent in the company’s business sector.
company must follow rules on the composition/function of their boards. × Should monitor the audit procedures of the company,
including its systems of internal financial controls.
Corporate Governance Statements:
DTR 7.1.5R Issuers must make a statement disclosing which body carries
DTR 7.2.1 and DTR 7.2.9 The company must prepare a corporate out the functions required by DTR 7.1 and how that body is composed.
governance statement that must be included in:
* The directors’ report While the CGC statements are recommendations only, compliance
* A separate report published together with the Annual Report with the DTR 7.1 is mandatory.
OR
* A document on the company’s website to which reference is TYPES OF OFFERING, METHODS OF PRIMARY ISSUE:
made in the directors’ report.
During preparations for listing, the company will work with its advisers
DTR 7.2.2R The corporate governance statement must contain a to establish the most appropriate method for making the issue.
reference to the CGC to which the company is subject.
Factors to decide on the right method
DTR 7.2.3R If the company departs from the code, it must explain which Retail offerings Institutional offerings
parts of the code it departs from and the reasons for it. Cost Expensive, as shares are Cheaper, as shares are
offered to the public. – eg. offered through an
The relationship between the CGC and the LPDT Rules: bank’s fees to deal with share investment bank and broker
applications, advertising. directly to investors.
Unlike DTR 7.2, the CGC does not form part of the LPDT Rules. However,
all companies with a premium listing must take into account the CGC. Timing Time-consuming as a retail Quicker as an it involves
offers need time for fewer investors and they are
marketing and to process the identified earlier if they are
LR 9.8.6R (5)-(6) Companies with a premium listing must make a ‘comply share applications and deal clients of the investment
or explain’ statement in their Annual Report stating whether they have with the allocations. bank.
complied with the CGC, the extent of any non-compliance and why.
Shareholder Greater liquidity in the shares Lower liquidity in the shares
FCA guidance If there is an overlap between the corporate governance liquidity due to the larger shareholder as there are fewer
requirements in DTR 7.2 and the CGC, compliance with the relevant CGC base. More people buy/sell shareholders holding large
provision will satisfy the corresponding provision in DTR 7.2. However, shares at the same time. amounts of shares.
that not all of the provisions of DTR 7.2 overlap with the CGC.
Companies should aim to be in full compliance with both the CGC and A flotation could combine retail and non-public offers. All forms of offers
DTR 7 by the time it lists so that it meets the standards expected by can also be combined. – eg. Placing and offers for subscription or offers
investors. for subscription and offers for sale.
Scope of the CGC: Retail Offers:
The CGC covers a variety of matters including: Retail offerings (public offer) = Offers to retail investors. – usually picked
* Board composition by well-known companies with potential for further growth.
* Directors’ remuneration Retail offers may include:
* Financial reporting * An offer for subscription – new shares will be sold to the public
* Relations with shareholders AND
Nothing in the CGC overrides the requirement to treat shareholders * An offer for sale – existing shares will be sold to the public
equally and provide them with equal access to information. LRs App 1.1 Relevant definitions Offers for Subscription – elements:
Smaller listed companies: * New shares are issued to raise capital for the company
Some of the CGC’s provisions do not apply to smaller companies (those * The shares are offered to the public in an Initial Public Offer
below the FTSE 350). Smaller listed companies may decide that some of (IPO). The investors subscribe for the shares.
the provisions are disproportionate or less relevant to their size. The * Company appoints a receiving bank to accept the applications
Quoted Companies Alliance (QCA) publishes guidance on compliance from the public and deal with payment for the shares.
with the CGC for smaller and mid-size quoted companies.
Corporate finance – Workbook summary | Page 3 of 32
, LRs App 1.1 Relevant definitions Offers for Sale – elements: × Commencement of conditional dealings.
* Existing shares (shares issued and allotted prior to flotation) are × 48 Hour documents submitted to FCA.
offered by the selling shareholders. × Documents to be provided on the day to the FCA.
* Selling shareholders sell the shares to the public in an IPO. × Hearing of application for listing by FCA.
* An offer for sale will not raise new capital for the company, × Hearing of application for trading by LSE.
rather it enables shareholders to realise their investment. Thus
an offer for sale is often combined with an offer for subscription. ADMISSION DAY:
* Selling shareholder appoints a receiving bank to accept the × FCA and LSE announce admission to listing and trading.
applications and deal with payments. × Trading in shares commences (unconditional dealings).
Institutional offers: × Shares credited to placees’ CREST accounts.
Institutional offerings = Offers to institutional investors (sophisticated DOCS REQUIRED FOR RETAIL/INSTITUTIONAL OFFERS:
investors). – used by less well-known companies or companies that want
to avoid the additional regulatory burden. Prospectus: *Most important document in a flotation*
1. Issued by a listed company and used to market the issue to
Institutional offer may include: investors.
* Placing – new/existing shares are sold to institutional investors. 2. It is required by Part VI, FSMA and the Prospectus Regulation
AND Rules (PRR) in order to be listed on the Official List.
* Intermediaries offer – similar to a placing but shares can be 3. The prospectus must include all the info investors need to make
marketed only to firms who are intermediaries. The shares are an informed decision when they consider buying the shares.
offered to these intermediaries to allocate to their own clients
(who can be retail investors) in return for a commission. Types of prospectus:
LRs App 1.1 Relevant definitions Placing – elements: Fixed price/Price-range prospectus:
* New/existing shares are offered by the company and the selling A fixed price prospectus has the price for the shares set out in it. This is
shareholders. commonly used in together with a pathfinder. A price-range prospectus
* The shares are offered to placees. is final except for the share price, as only a price-range will be included.
* Need not appoint a receiving bank, the investment bank will deal
with the proceeds of the issue. An issuer may decide to use a price-range prospectus in a retail offer so
that the approved price-range prospectus can go out to potential retail
Placees = Sophisticated/institutional investors, who are other financial investors before the bookbuilding process is finished. Once the price is
institutions, such as banks/pension funds. They are clients of the broker/ confirmed, the issuer will publish the final price.
sponsor/investment bank.
Pathfinder: *Not legally a prospectus*
Placing letters = Letters sent to the placees and include the Ts&Cs of the Alternatively, an issuer making an institutional offering with no retail
offer. The placees may sign this letter if they agree to buy the shares. element may use a ‘pathfinder’ for marketing purposes and, will publish
an approved prospectus (containing a fixed final price) at a later date.
Intermediaries Offer – elements:
1. Intermediaries are fund managers/stockbrokers who buy/sell Pathfinder = a near-final draft version of a prospectus but it will not
shares on behalf of clients. contain the share price/price-range. A pathfinder is not approved by
2. The shares are not offered to the general public – but, it is the FCA before being distributed and it is not a prospectus.
deemed to be an offer to the public under s.85(1) FSMA and is
usually made by way of a prospectus. Pros and cons:
4. The company and selling shareholders do not have to offer the
shares directly to investors. The intermediaries act as agents. Pros: The issuer can later produce Cons: Only limited distribution is
5. It involves considerable administration, so these offers are rare. a fixed price prospectus as the permitted as the pathfinder can
pathfinder has been used to only be distributed to qualified
TIMETABLE FOR AN OFFER: determine the price for the shares. investors. Distribution to retail
Usually avoids having to publish a investors would breach s.85(1)
supplementary prospectus that FSMA by offering shares to the
Example timetable for an offer for a listing on the Main Market using a would trigger withdrawal rights for pubic without FCA approval.
price-range prospectus with a retail element. investors.
PLANNING STAGE – 16-24 weeks before Admission day: FSMA 2000 (Financial Promotion) Order 2005 (FPO 2005) A pathfinder
× Advisers appointed. will amount to financial promotion under s.21 FSMA. Thus you must only
× Preliminary meetings regarding the structure of the offer. send the pathfinder to persons who fall within an exemption from s.21
× Due diligence commences. FSMA (such as institutional investors).
× Auditors start to prepare long and short form reports.
13.1.3 Approval of prospectus:
DRAFTING OF DOCUMENTS – 12-16 weeks before Admission day: PRR 3.1.10R A prospectus can only be published once approved by FCA.
× Price-range prospectus prepared and reviewed.
× Verification meetings. 13.1.4 Publication of prospectus:
× Draft documents, including price-range prospectus, submitted PRR 3.2 Sets out the procedure for publication.
to FCA for comment. PRR 3.2.2-3.2.6 Once a prospectus is approved, it must be filed with the
FCA at the same time it is made available to the public.
ANNOUNCING INTENTION TO FLOAT – 7 weeks before Admission Day: PRR 3.2.6G A prospectus must be filed with the FCA by uploading it to
× Announcement of intention to float. the NSM.
× Details of offer publicised.
× Pre-marketing – broker solicits initial interest from investors. Initial public offer (IPO): PRR 3.2.1
× Submission of docs to FCA at least 20 clear working days before Where there is an initial public (retail) offer of shares not already
publication (often submitted 3-4 months prior). admitted to trading, the prospectus must be made available to the
public at least 6 working days before the end of the offer.
MARKETING, ANNOUNCEMENT OF OFFER AND LAUNCH – 4 weeks
before Admission Day: Other offers: PRR 3.2.1
× FCA approves price-range prospectus. Any other offer will fall within PRR 3.2.1 which states that the prospectus
× PRR 3.2.6G File the prospectus with the FCA when it is made must be made available to the public by the issuer, the offeror or the
available to the public and upload to the National Storage person asking for admission to trading on a regulated market at a
Mechanism (NSM), a document viewing facility. reasonable time in advance of, at the latest at the beginning of, the
× Price-range prospectus printed and published. offer to the public/the admission to trading.
× Bookbuilding: presentations/roadshows to investors Methods of publishing: PRR 3.2.2
× Placing letters sent to potential placees. The prospectus is deemed available to the public when published in
LAST DATE FOR RECEIPT OF BIDS – 8 days before Admission Day: electronic form on the website of:
1. The issuer
× Last date for receipt of applications. AND
2. The offeror/the person asking for admission/the financial
PRICE DETERMINED, ADMISSION HEARINGS – 7 days before Admission intermediaries/the website of the regulated market.
Day:
× Pricing and allocation. The prospectus must be published on a dedicated section of the website
× Publish final pricing statement. which is easily accessible and it must also be downloadable, printable
× Underwriting Agreement is signed. and searchable in a format that cannot be modified.
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