Regulator set to tackle London listing loophole

Tim Wallace
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TOUGH new corporate governance rules are in the pipeline to stop dodgy firms taking advantage of a loophole that allows them to list in London through a reverse takeover, without going through rigorous checks first.

But although investors welcomed those proposals, they rejected Financial Services Authority plans to reduce the minimum free-float requirement, arguing it could reduce small shareholders’ power against dominant larger owners.

The FSA said it may “consider a free float of below 25 per cent if there is sufficient liquidity”, and will detail when it may be cut to 20 per cent.

Public offerings of firms with small free floats or a dominant shareholder, such as Bumi and ENRC, have caused controversy in recent years.

But the National Association of Pension Funds argued that liquidity is not the only important factor, and called for larger free floats instead.

“As set out in the Kay report, there is increasing attention being given to the role of shareholders in improving long term corporate performance,” said head of corporate governance David Paterson. “A greater free float would be helpful in this respect.”

He also pointed to the FSA’s note that many investors argued the “listing rules should include a requirement for a free float of 50 per cent, or even more.”

But the FSA hit back, arguing other factors are also important. “Free float would be a blunt tool even if used explicitly to ensure effective governance in a company,” it said. “In addition we are also aware of concerns held by the sell-side that any increase in free float would risk damaging London’s attractiveness as a market for IPOs.”


■ Firms involved in reverse takeovers will have to meet usual corporate governance rules before selling shares in London

■ They will have to publish detailed financial information and show they are well run, as others looking to list already do

■ The change will come in from the start of 2013

■ The FSA now recognises the concept of a “controlling shareholder”

■ In firms with such a shareholder, tougher rules will be in place to make sure it is governed independently

■ That includes having a majority of independent directors on the board

■ The minimum free float requirement may be reduced from 25 per cent to 20 per cent, if there is enough liquidity

■ Although a larger free float requirement could improve corporate governance, the FSA insists it is a blunt and inappropriate way to do so