THE FORTHCOMING privatisation of Royal Mail is the biggest post-financial crisis test so far of the market for new issues in London, which was virtually closed for business just a couple of years ago.
In the years following the financial crisis, London became a notoriously difficult place on which to list shares in a new company.
Global conditions were unfavourable; buyers felt they had been stung by the flotations of the likes of Ocado and Sports Direct, whose shares traded poorly after flotation (both are doing well now, incidentally); and companies, especially technology-focused, such as Luxfer or Edwards, assumed they were best off floating in New York. When I asked a banker at Jefferies how long the advisers considered floating Luxfer, a Salford-based company, in London, he told me: “30 seconds”.
Now the pendulum is swinging back in London’s favour.
The market for London IPOs effectively restarted almost a year ago when RBS successfully floated off a large stake in Direct Line, its insurance subsidiary.
The shares in Direct Line were modestly priced and bankers on the deal, which was spearheaded by Goldman Sachs and Morgan Stanley, found there was considerable interest from US investors who had become short on European equities as a consequence of the Eurozone crisis.
When the allotments were added up, it transpired that US investors had bought around 30 per cent of the stock, helping to boost overall demand.
Direct Line shares, which were first issued at 175p each, are now trading at around 213p, a decent enough premium. Importantly also for Royal Mail, 15 per cent of the shares in Direct Line were bought by retail investors, marking a return to the market for this type of investor who had helped fuel the mid to late 1980s privatisation boom of the Thatcher era.
Other flotations followed, such as Crest Nicholson, the housebuilder, Countrywide, the estate agency chain, and the insurance group eSure. Most of the new issues of the past year have performed satisfactorily, with the exception of eSure, whose shares have fallen from 290p at the time of its listing to 250p now, after disappointing news on trading and dividend policy.
Countrywide, on the other hand, has seen its shares trade impressively, up from its 350p issue price to 556p yesterday.
As recently as last week, Foxtons, the London focused estate agency chain, surprised the market with the level of interest in its shares, which were comfortably oversubscribed.
Roll on, Royal Mail. The London market is ready for you.