LONDON’S capital markets have been cheered a little by news that Alisher Usmanov, the Russian tycoon that owns a large shareholding in Arsenal football club, intends to raise $4bn (£2.5bn) for mobile phone operator Megafon in the next few weeks.
There have been too few IPOs this year and so anything that livens up the near dormant new issues market comes as something of a treat.
But confidence in the market as a whole will only seriously be restored when a large domestic issue goes ahead and satisfies most of the objectives of a successful listing. These include achieving a pricing level that allows initial investors to feel they have not been cheated and a mid-term financial performance that demonstrates that not all the things being said at the time of the flotation were just wishful thinking or simply downright lies.
So there is a lot resting on the potential listing of Direct Line insurance. The group, which is being sold by RBS at the behest of the European competition authorities, moved closer to a listing this week. It has been advised for some weeks by Goldman Sachs, Morgan Stanley, and UBS, and has since brought in other big battalions from the City’s banking community. Its bookrunners, if the deal goes ahead, will now include Citi, HSBC, Bank of America Merrill Lynch, BNP, Commerzbank, Investec, KBW and RBC.
Those who have seen the management have come out with serious questions unanswered in their minds. Some question the experience of Paul Geddes, saying he is unused to running a large publicly-quoted company. Geddes came from the marketing and strategy side of RBS before taking over at the retail bank.
“It’s rare that an executive from a marketing background makes it to become chief executive of a high profile publicly-listed group which this will become,” said one insurance analyst.
Geddes’ position stimulated some debate on the RBS board at the time the edict was given to sell the company off, especially since he had headed RBS’s UK retail bank for some of the time during the mis-selling of payment protection insurance (which has cost it over £1bn).
He won the board’s support but probably now needs to tell potential investors in the group what lessons he has learned from the affair and what makes him think he could prevent something similar from happening again.
It is true that Geddes is ably supported by an impressive finance director in John Reizenstein but nevertheless he still needs to do a better job at selling his own credentials.
A lot of management teams have tried and failed to raise money in the London markets recently – just look at Edwards, the vacuum technology company that ended up floating in the US after failing to win over UK investors. Clearly, these are not markets for faint hearts.
Geddes has so far focused on the numbers at Direct Line. Now he needs to sell himself and his team and explain why they should be backed. Or he will fail, and deservedly so.