Revive and thrive: How stock exchanges are helping get us back on track
Wednesday, 15 Jul 2020
Stock exchanges are thriving in their role as facilitators of economic and social rejuvenation in the wake of COVID-19, according to Mark Oliphant, Head of Communications at The International Stock Exchange Group.
In recent months we have seen many organisations tapping the public markets for finance through a variety of equity and debt issuances aimed at primarily economic but also, either directly or indirectly, social rejuvenation in the wake of the coronavirus (COVID-19) global pandemic.
Public markets & COVID-19
It is something of a different vibe from even earlier this year when the role of stock exchanges was being seen in some quarters as increasingly irrelevant for all but the largest firms in the light of the falling numbers of Initial Public Offerings (IPOs) and a growing trend for companies to stay private for longer.
Initially, COVID-19 seemed only likely to reinforce this trend as it sent the major stock exchange indices into a spin, listed open ended real estate funds were forced to suspend as the property market froze with uncertainty and quoted companies struggled to grapple with reporting and filing obligations.
However, like ourselves at The International Stock Exchange (TISE), many exchanges have taken a pragmatic approach to balancing the interests of all market participants, including both issuers and investors, in order to ensure the continuation of a fully functioning market. This is an approach which demonstrates the willingness of those overseeing venues to ensure that the public markets can help mitigate the effects of COVID-19.
"Overall, at 30 June 2020, the total number of securities listed on TISE had grown to 3,030 and the total market value of those listed securities had risen to more than £400 billion."
Indeed, the impact of COVID-19 has touched every business. It is true to that unlike prior economic downturns, companies have been able to access government assistance and of course, private equity houses are sitting on plenty of dry powder which is ready to deploy but also many organisations have tapped the public markets, either through equity or debt issuances.
Tapping the capital markets
Figures from the London Stock Exchange show that there was more than £16 billion raised through its equity Main Market during the first half of 2020 and nearly £2.9 billion raised on AIM during the same period. Both are at higher levels than the amounts raised during the first six months of 2019, which were £11.4 billion and £2.1 billion, respectively.
Having said that, in both cases, new issues worth £2 billion (Main) and £79 million (AIM) were far outstripped by the further issues from companies already on the market, which totalled £14 billion on the Main Market and £2.8 billion on AIM during the first half of this year. It is notable that this trend is much more accentuated on the latter, although for both the Main Market and AIM the value of new issuance levels dropped significantly from March through May but markedly recovered in June, while the value of further issues on both markets increased significantly across the second quarter.
Christopher Raggett, Co-Head of Corporate Finance at finnCap Group, has commented that where firstly fundraises were based on necessity, in order to survive, bolster the balance sheet and weather the storm, as time continued and investors started getting used to the new normal, necessity turned to opportunity and those fundraisings quickly became predominantly about growth.
He also commented that COVID-19 itself has led to opportunities in the Life Sciences sector in particular and there is no doubt that some sectors, such as healthcare, technology and logistics, have fared best within the generally awful predicament and others such as travel, retail and hospitality have been hardest hit.
FinnCap also acted as Nominated Adviser and Sole Broker to the first IPO out of lockdown when management consultancy firm Elixirr was admitted to AIM with a £25 million placing at the start of July. The IPO had very little to do with COVID-19 but it underscores the importance attached to matching pre-IPO private investment with access to new growth capital.
Records broken at TISE
At TISE there were more new listings on the Exchange during the first six months of 2020 than in the same period of any other prior year since the business was established in 1998. There were 390 securities admitted to the Official List during the first half of this year, despite the backdrop of COVID-19, and this represents a rise of more than 60% on the same time in 2019.
Last year the uncertainty created largely by Brexit led to subdued levels of listing activity during the first half of 2019. This then gave way to a much stronger performance during the second half of last year which continued into the first quarter of 2020. What has been hugely pleasing is that the volumes of listing applications continued to hold up unexpectedly well during the second quarter of this year, despite the continuing impact of COVID-19 on the broader economy.
Overall, at 30 June 2020, the total number of securities listed on TISE had grown to 3,030 and the total market value of those listed securities had risen to more than £400 billion.
"At TISE there were more new listings on the Exchange during the first six months of 2020 than in the same period of any other prior year since the business was established in 1998"
What we have seen during the second quarter is a pipeline of business particularly linked to completed private equity and real estate transactions. This has been increasingly mixed with listings related to corporate refinancing, whether essential or opportunistic, as well as greater proportions of securitisations and high yield bonds. What remains to be seen is whether any delayed impacts from COVID-19 or any resurgent uncertainty surrounding the future UK-EU relationship result in a slowdown in listing activity during the second half of the year.
A responsive and cost-effective approach
A key ingredient for TISE’s success has been our responsive and cost-effective approach. For example, the Exchange offers guaranteed ‘3+2’ turnaround times across all debt and equity listing applications and flat rate fees which don’t vary according to the size of the issue but are appropriately scaled by product type.
For example, Exchange fees of £12,000 in the first year for listing the equity of a trading company make it viable for businesses to IPO at an earlier stage, perhaps offering existing owner/managers of Small to Medium-sized Enterprises (SMEs) in particular a partial or full capital exit. Similarly, TISE is home to more than 30% of all UK Real Estate Investment Trusts (REITs) because the regime is pragmatic, and the fees are very competitive.
Equally, TISE’s value for money and efficient listing service has attracted companies ranging from blue chip multinationals and a wide variety of UK corporates that are raising debt finance. This includes securities issued by private equity groups to help finance their acquisitions of portfolio companies (which of course, themselves, could be exited via a listing at a later stage).
The transactional activity within the private equity and real estate sectors has slowed during the first half of 2020 and so it remains to be seen what impact this might have on listings during the last six months of the year. However, already we have seen some of this work replaced by refinancing activity and there is also plenty of capital ready to be deployed at the most opportune time and which could lead to listings in due course.
"TISE is home to more than 30% of all UK Real Estate Investment Trusts (REITs) because the regime is pragmatic, and the fees are very competitive."
COVID bonds and sustainable finance
At the start of the year one of the key investment themes was green finance. The pandemic has meant that green per se has been increasingly complemented by a greater focus on allocating capital to projects with a social purpose, for example via COVID bonds, and as such this is helping to drive a broader sustainability and Environmental, Social and Governance (ESG) agenda.
At TISE we have a green market segment, TISE GREEN, which is open to equity or debt issuers who have had the green credentials of their investments verified by a third party against a globally recognised standard. There are currently four green bonds admitted to TISE GREEN and there are other securities admitted to the Official List where the proceeds are being used for purposes which protect or enhance the environment.
Equally, we have other issuers, such as social housing investment vehicles, on the market who would likely qualify for a specific social segment and this is an area we are monitoring closely, not least as a result of COVID-19 and the impact that this is having on socially responsible investing and the development of recognised measurement and standards.
Revive and thrive
Since the onset of the pandemic, the capital markets have been tapped by a range of organisations which have been seeking to raise either equity or debt finance for objectives, ranging from economic survival of businesses through growth opportunities and out to sustainable investment. Ultimately, it seems that there is a renewed recognition that stock exchanges can provide a complementary offering to the private markets and one which can help us all revive and thrive in the wake of COVID-19.