IT has not been good news of late for UK IPOs. First the US travel group Travelport pulled its £1.2bn London flotation after failing to win investors’ support in turbulent markets. The next day, Madame Tussaud’s operator Merlin Entertainment put its £2bn flotation on hold, with severe market volatility blamed for the delay. Fashion retailer New Look was next, despite previously announced intentions to
publish a prospectus and price range for the float in the coming week.
Many had expected a positive outlook for IPOs from April onwards. But in a post-recessionary business environment that emphasises prudence, many potential institutional investors are concerned about volatility and the need for smooth returns. But their rationale offers little consolation to a firm that needs to raise finance to fund operational growth or to meet changing loan commitments.
Previously, such businesses would have looked to an IPO as a way of raising finance, but what are the options now?
One answer could lie in the London Stock Exchange’s new platform, the Retail Bond Market, which began on 1 February. It allows companies to issue a more limited debt offering to retail as well as institutional investors rather than attempt a full-scale equity listing. It could thus offer a much-needed cash injection for companies and provide long-term capital. For private equity-backed companies the issue of debt (possibly including subordinated or convertible debt) could offer their backers the opportunity to refinance part of their investment.
Caution is less likely to be a problem with a debt offering through the Retail Bond Market. We have seen a growing appetite among retail investors for UK corporate bonds. Assuming interest rates continue to remain low the backdrop of a slowly recovering economy can be ideal for a bond issue as investor preferences are naturally focused on stable cash flows.
In short, the Retail Bond Market could be exactly what ailing markets and the economy need right now given that banks may still be unwilling to lend. It benefits both sides: issuers gain access to capital so that companies can develop, while investors benefit from efficient and transparent access to fixed-income securities, meaning easier portfolio diversification.