London needs a champion to revive new issue market

David Hellier
Follow David
THERE’S been a drama playing out over the past few days in London that in recent times we haven’t seen enough of.

A maker of luxury cashmere sweaters worn by Prince William and James Bond met fund managers to gauge interest in a share flotation. The fund management groups in attendance, who included Citadel Group, Capital Ward Investments and Marshall Wace, were generally positive about the company and didn’t automatically feel they were being ripped off by greedy private equity sellers advised by sharp-elbowed private equity advisers.

At the end of the presentations, in which the company extolled the virtues of paying above average wages to its workers in order to keep skills from being exported to lower wage regions, the main worry for most institutional investors was whether they would manage to get hold of any stock, with the offer eleven times oversubscribed.

So far so good, but the problem with this story as far as London is concerned is that the company, Brunello Cucinelli, is Italian and is listing not in London but in Milan.

Luxury goods companies tend to head for the Far East these days but the firm’s eponymous owner Brunello Cucinelli is said to be quite nationalistic and preferred a float in his home market.

How London could do with such an enthusiastic backer.

Whatever else the London Stock Exchange, the Mayor of London and the Lord Mayor of the City of London are getting up to, between them they have failed miserably to make the case for IPOs returning to London. The last major non-Russian IPO was in July 2011 when Ophir Energy successfully raised £233m in London.

Indeed, London tends to make a reasonable case to oil and gas companies but in so many other sectors it is failing badly. I went to lunch last week with the London head of a leading investment bank, who said his house was advising at least two UK-based companies on intended flotations in overseas markets.

It is difficult to make complete sense of the comments of David Wootton, the Lord Mayor of the City of London, when he writes in City A.M. that London remains the world’s pre-eminent financial centre when such an important aspect of finance – a market on which growth companies can raise new equity – remains effectively closed for business.

Of course, the disappointments that followed the IPOs of companies such as Promethean World and Supergroup, both of whom suffered from sizeable share price falls last week, doesn’t help London’s case.

But the time has now come for action. An investment banker, who himself doesn’t much mind which jurisdiction his companies float in, recently said that the more young businesses go overseas for their equity capital, the more that top talent will follow the money. That must be the likely outcome if the current trend continues.

Or instead the great and the good in the City need to persuade those who are thinking of going elsewhere that they will do all they can to make the market attractive enough here.