Proposed restrictions on the number of smaller companies listed on the London stock exchange as part of the FCA’s shake up of the market could “undermine” the City’s competitiveness rather than improve it, a group of City figures has warned.
An increase to the minimum market capitalisation for companies to list on the main stock exchange from £700,000 to £50m has been proposed by the FCA, which argued that companies below the £50m threshold were “better suited” to listing on London’s AIM market instead.
But such changes could severely impact London’s attractiveness as a market for listings and hamper a company’s ability to grow, according to a group of City figures that have called on the FCA to encourage it to reconsider the new cap.
“We should resist unnecessary barriers as businesses look to achieve their transformational potential,” said Ex-Aberdeen Asset Management chief Martin Gilbert, who now chairs former cash shell AssetCo.
Their calls centre around such “cash shells” – companies that, similar to special-purpose acquisition companies (SPACs) but with a different structure, are established in order to buy others.
Under the proposed plans, such companies would be excluded from the main public markets and the UK economy would suffer, according to James Corsellis, managing partner of investment firm Marwyn, who has written to the FCA.
Marywn was the investment firm behind Entertainment One, which started life as a cash shell and went on to buy kids TV show Peppa Pig before being sold to Hasbro.
But Entertainment One would have struggled to list under the new proposed rules, Corsellis and eleven signatory businesses that also launched as cash shells said in the letter, first reported by The Times.
While launching a listed company with a relatively low market cap enables a business to gain investor trust through the various requirements such as information disclosure and corporate governance, these “solid foundations” for further fundraising would be thwarted by the plans, the letter goes on.
Launching cash shells on AIM would be make it even harder to attract investors due to the expense of switching to the main market once they’d grown large enough, he said. Ultimately, this would “only go to undermining London’s competitiveness as a market.”
The FCA is currently analysing feedback on its markets review consultation, within which it said its aim was to “balance the needs of issuers and investors”.