Inside Track: Global funds still have the appetite for UK’s new issues

David Hellier
Follow David

IT’S LIKE the floodgates have opened. Dead for so long, the London new issues market is now buzzing with intentions to float, rumours of upcoming floats and talk of dual track processes where advisers start a float only to sell to a trade buyer if a better offer comes up.

Yesterday there was news of a flotation of the private equity-backed drinks maker Stocks Spirits. The British-headquartered firm, which is the biggest vodka producer in Poland and the Czech Republic, said it would raise £52m by selling new shares to pay down debt. There was also an announcement from Terra Firma, the Guy Hands-run private equity group, that it plans to float Infinis, a renewables energy firm.

All this comes after Riverstone Energy, an energy investment firm, revealed plans earlier this week to raise up to £950m. And on top of this, there’s the biggest of the lot to come; the intended privatisation of Royal Mail, which will involve the issue of at least £1bn of new shares into the UK market.

Not surprisingly some fund managers, mainly UK-focused, have discussed the possibility of indigestion. They fear there is too much new paper around and they can not justify putting all their eggs into the UK equity basket.

But equity capital markets bankers largely dismiss this view. One said to me: “For me the key change is the diminishing importance of the traditional UK long-only funds. They don’t have inflows and so we rely on the big US funds, who in recent times have been taking up 30 per cent or more of the funds in UK equity issues.”

Bankers on the recent sale of £3bn worth of shares in Lloyds Bank say there was perhaps only one traditional UK long-only fund amongst the top 20 buyers of the issue. For the time being, it looks like the show will go on, and there are further companies like Zoopla and Merlin Entertainments, waiting to get in on the act.

Berenberg Bank, Germany’s oldest private bank (founded in Hamburg in 1590) made waves last year when it was brought in by German insurer Talanx to advise on its flotation, taking the place of big beasts such as JP Morgan and Citigroup.

This week it raised some eyebrows in London by being listed as an adviser on both the Riverstone Energy and Stock Spirits deals. The firm, which now has a large City office, says that its relationship with around 600 institutions across the globe means it can add an extra facet to the advice from the bulge bracket firms who tend to have a narrower institutional list.