The UK Stock Market Now Trails Oman and Malaysia in IPO Rankings

(Bloomberg) — Things are going from bad to worse for London’s IPO market, where less money has been raised this year than on some tiny frontier venues.

Fundraising from London initial public offerings has declined about 9% this year to $1 billion, pushing the UK four spots lower to 20th place in a ranking of global IPO venues, according to data compiled by Bloomberg through the end of November.

It’s been leapfrogged by upstarts including Oman, a market that’s 1% the size of the UK, as well as Malaysia and Luxembourg. That’s a big change from just a few years ago, when London would regularly feature among the top five venues globally. 

The rankings show the depth of the challenges for the UK: The market has been undermined by low valuations, a risk-averse pool of local investors and growing competition from other financial centers. While the nation recently overhauled its listing rules, investors and executives say more needs to be done to reinvigorate the 300-year-old bourse.

Roughly a dozen firms have listed in London this year, with the largest raising just above £150 million ($191 million). The city didn’t have any listings among the top 100 globally, with Greece, Sweden and South Africa all hosting bigger offerings this year. A number of billion-dollar share sales have also come to major Middle Eastern exchanges as more countries seek to have national champions list at home to deepen their domestic capital markets.

“Governments are doing everything they could to attract more companies to come, so the competition is now more intense,” said George Chan, EY’s Shanghai-based global IPO leader. “If we do not change this sort of landscape, it’s going to take a lot of time for the UK to be back on the top of the pyramid.”

Much of the IPO activity this year has been in the Middle East and Asia, which together accounted for more than half of this year’s fundraising as well as five of the 10 biggest deals globally.

Late last month, Delivery Hero SE’s local unit Talabat Holding Plc completed a $2 billion Dubai IPO after boosting the size of the deal and pricing it at the top of a marketed range. It now ranks as the world’s biggest tech IPO this year. In October, hypermarket chain Lulu Retail Holdings Plc priced a $1.7 billion offering in Abu Dhabi and a unit of Oman’s state oil company raised $2 billion.

They’ve been joined by some blockbuster listings in Asia, including Tokyo Metro Co.’s $2.4 billion IPO in October and Hyundai Motor Co.’s $3.3 billion float of its Indian unit. 

“London, like other European markets, faces increased competition from domestic markets in a way it did not 8-10 years ago,” said Chris Laing, HSBC Holdings Plc’s head of equity capital markets for Central and Eastern Europe, the Middle East and North Africa.

One company exemplifying the shift is Middle Eastern oil and gas driller ADES Holding Co. It began trading in the UK in 2017 but lost about half its value by 2020, with its market capitalization dropping below $400 million. In 2021, it was taken private by a consortium backed by the Saudi sovereign wealth fund. 

The company’s growth accelerated after the buyout, and last year ADES relisted in Saudi Arabia. It now has a market value of about $5.5 billion and trades at 24 times estimated earnings — roughly quadruple the valuation it had for much of its time in London. About $30 million of stock changes hands daily — over 100 times the average turnover for its last year in London — and it’s covered by double the number of research analysts. 

While IPO volumes have been thinning, takeovers are shrinking the UK stock market at the fastest pace in more than a decade. 

Around 45 companies have left the London bourse this year due to mergers and acquisitions, according to data compiled by Bloomberg. That’s the highest tally since 2010. Many of them are unloved mid-cap companies that have little analyst coverage and trade at low multiples compared to their peers in other markets.

These relative bargains are attracting interest from blue-chip private equity firms. KKR & Co. completed two buyouts of London-listed companies this year, snapping up a smart metering firm and a maker of network management software used by utilities. EQT AB closed two deals as well, while Brookfield Asset Management, CVC Capital Partners Plc and Fortress Investment Group are also doing take-privates of UK companies. 

Others have been leaving the London exchange after complaining of low liquidity. Food delivery group Just Eat Takeaway.com NV said in November it will delist from London and shift to just an Amsterdam listing. Ashtead Group Plc announced this week it will move its primary listing to the US, calling it the “natural” long-term venue for the construction-equipment rental company. 

Activists want other companies to follow suit, with Palliser Capital recently ramping up demands for miner Rio Tinto to give up its London primary listing. Travel group TUI AG and drugmaker Indivior Plc are among firms that have already dropped their UK listings or shifted their main stock quotation to other markets.

Barclays Plc Chief Executive Officer C.S. Venkatakrishnan said at a conference this month that the UK equity market has been in “structural decline for over 30 years,” in part due to domestic pension funds’ risk appetite. Venkatakrishnan even joked, in a pithy self-reference, that he wishes there were “more zippy” companies on the London bourse than a bank that’s three centuries old. 

Meanwhile, some of the home-grown tech darlings that London wants to attract are looking elsewhere. Revolut boss Nik Storonsky said recently he’d prefer to float his UK-based fintech company in New York, opining that the London market is “much worse” and it’s “not rational” to list there. His comments follow the decision by Cambridge, England-based chip designer Arm Holdings Plc to list in the US last year. 

Companies are staying away from the London market as they can’t get the valuations they want, said Liad Meidar, managing partner at Gatemore Capital Management. The number of firms that have delisted from the London bourse for a variety of reasons this year is now more than 10 times the tally of IPOs, data compiled by Bloomberg show. Meanwhile, UK-focused equity funds recorded 41 straight months of net outflows through October and only returned to net inflows in November, according to funds network Calastone Ltd.

“There’s a malaise in the UK — the state of capital markets is negative,” Meidar said. “Global investors can access the US market and capital is pooling there.” 

London’s sleepy IPO market and the shrinking pool of UK-listed firms has hurt some of the local advisory firms that help companies raise money and handle interactions with investors. UK corporate broker Shore Capital Group Ltd. said in September that pretax profit in its capital markets division fell 69% in the first half of the year. Competitor WH Ireland Group Plc sold its capital markets business this year in a bid to return to profitability. 

The woes have prompted a wave of consolidation in the industry, while some firms have also been seeking to diversify their offerings. Peel Hunt Ltd. has highlighted the proportion of revenue it gets from M&A as its trading business slowed in recent months. Panmure Liberum set up debt advisory services and a team to help companies raise private capital.

Bankers point out it’s not all doom and gloom. Equity capital markets activity remains robust outside IPOs, with the total volume of share sales and rights offerings rising 60% this year to $30.8 billion, according to data compiled by Bloomberg. And London has attracted some listings from overseas — even if they’re not raising any capital. In August, Hong Kong-based utility owner CK Infrastructure Holdings Ltd. added a secondary listing, while French conglomerate Vivendi SE is planning to spin off its pay-television arm Canal SA on the UK bourse this month.

Fast-fashion giant Shein is preparing for a potential London IPO as soon as early 2025 after previously failing to list in the US. Other companies have been looking to list later next year including Canopius Group, a Lloyd’s of London insurer backed by Centerbridge that may seek a £3 billion valuation, Bloomberg News has reported. Private equity-owned consumer credit firm Newday is also considering a London share sale in the second half of next year that could value the company at upwards of £1.5 billion, people with knowledge of the matter said.

A representative for bourse operator London Stock Exchange Group Plc said that IPOs aren’t the sole indicator of the health of the UK capital markets, with the broader volume of primary stock offerings well ahead of other European exchanges. 

“We are encouraged by the pipeline of companies looking to IPO and anticipate more activity following the implementation of the new listing rules earlier this year,” the spokesperson said. 

UK authorities are taking steps to bring life back to the market. This year they implemented the biggest overhaul of listing rules in more than three decades, making it easier for companies to have two classes of stock in a move aimed at attracting more tech listings. They’re also offering more flexibility on disclosures of significant transactions. Prime Minister Keir Starmer has vowed to scrap regulations that are holding back economic growth as he seeks to soothe international investors. 

Alexandra Jackson, a fund manager at Rathbones Group Plc, said limited fund inflows into the UK are making it harder to execute IPOs. Listing candidates will want to see more momentum before attempting an offering, though investors are willing to find the money to back the right businesses, she said. 

“There’s not loads coming down the pipe, but hopefully more will be added to the pipeline,” Jackson said. “We need to see some animal spirits come back into the UK.” 

–With assistance from Rafael Hakl, Deniz Besiroglu, Demetrios Pogkas, Patricia Suzara, Michael Msika, Jennifer Surane, Nguyen Kieu Giang, Paul Jarvis, Leonard Kehnscherper, Matthew Martin, Dinesh Nair and John Stepek.

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