What should we make of the London market for new issues, where private companies appeal for funds from equity investors such as BlackRock, Gartmore and the sovereign wealth houses?
Currently we have the spectre of Glencore, the commodities trading group, almost effortlessly getting away an $11bn (£6.7bn) fund-raising, while smaller, less well known companies fail to get their much-needed flotations off the ground.
Yesterday yet another London flotation, that of the Kremlin-backed Russian Helicopters company, was pulled after bankers failed to get sufficient demand for the shares on offer.
Talking to market participants, who have seen flotations from the likes of Edwards, Skrill and Topaz Energy recently pulled, there is a distinct lack of trust amongst potential investors in some of the companies that have been put forward and a feeling that many of the issues are being over-priced.
Investors, it seems, are especially wary of companies that are being offloaded by private equity companies and by groups whose management take the opportunity to sell a majority of their shares in the company they are trying to persuade others to invest in.
It was ever thus, I guess, but the current issue of deep investor mistrust dates back to March and July of last year, according to those in the market, when classroom supplier Promethean World and then online grocer Ocado respectively went ahead with flotations at price levels that could not be sustained in the short-term (in the case of Ocado), or the longer-term (Promethean).
Promethean’s shares, issued at 200p, soon dropped to 52p and now trade at 80p. Ocado’s shares, issued at 180p, fell back towards 120p (although, as many point out these days, they now stand at a healthy 233p).
“Experiences such as Ocado and Promethean take such a long time to live down,” says Owen Wild, deputy editor of the excellent International Financing Review.
The Glencore transaction seems to have escaped much of the negativism that has clouded the UK’s IPO market.
Partly this has been a function of size. Says Wild: “It’s been very hard to get anyone’s attention away from Glencore.”
But there’s also been a concerted attempt on behalf of the advisers and the company itself to learn from the mistakes of recent candidates for flotation.
Firstly, advisers have let estimates of valuations for Glencore drift ever upwards in the knowledge that once they settle on a mid-point valuation, which in this case is $61bn, it will look eminently reasonable.
Then there’s been the spirited declaration by chief executive Ivan Glasenberg that he won’t sell any of his shares.
To cap it all, there’s the masterstroke – apparently being claimed by Morgan Stanley as its plan – of bringing in cornerstone investors to take up around 30 per cent of the new shares. The ploy brought certainty of demand to the issue, and it seems to be paying off and will help London pitch itself as the financial centre of the world, at least for larger flotations.
• Allister Heath, who normally writes this column, became a father for the first time yesterday. We all send our congratulations to him, his wife and his baby girl.