Emerging Markets Leading the London IPOs and Frankfurt Listings for Growth, but maybe not Governance

After a spate of London IPOs and listings of UK firms on the Frankfurt Stock Exchange, there is a common underlying theme, emerging markets and resources. Looking at the London Exchanges, 70.8% of listings are mining, an increase from 7.6% in 2005 IPOs. The FSTE 100 by Sector June 16 2011 include:

-          13.8% Mining

-          19.9% Financials

-          13% Consumer Goods

-          1.1% Technology

-          32.8% Other

London and Frankfurt have been characterized over the years for attracting Russian and Chinese listings, and making the process easier for foreign companies to respectively list on their exchanges as a “relaxed” regulatory environment. The concentration has most recently been in the mining sector for London. (Possibly why the merger with the TMX group made such sense as one of the leading mining stock exchanges in the World for venture companies.) This year so far mining has accounted for over 70% of the IPOs listings in London. In contract, technology has been the largest IPO sector within the US at 16%.

Some worry about the Governance of these emerging markets, however, when you look at the FTSE 100 valuation, mining and resource companies such as Glencore and Vallar make up 1/3.

One of the criticisms to company owners is the UK Governance model has allowed for many of the Major Shareholders to only answer to themselves, the level of control allows them to arguably control or undermine the Board independence, and depends on a disparate shareholder base to hold directors to account. This structure has been primarily used with foreign listings, and it has been suggested to protect investors, that foreign companies listing have further scrutiny or measures of Governance to protect against the possibility of accounting and auditing inconsistencies between Countries, and lesser known businesses and management.

The irony is that the same Majority Shareholder and Governance issues do remain a concern whether the firm is foreign or local, the reality is that the UK financial community is feeling the strain of their investors funds leaving London and going overseas post-crisis.

In looking at the entire situation, one would even have to say that the rise in IPOs in solid sectors like commodities and Oil and Gas by foreign companies specifically has to do with the sentiment of the UK investor and European Investor who sees the emerging markets stabilizing in comparison to the crumbling foundations of the now disparate Investment Banks and financial sector.

Aside from the big board IPOs in London and the Frankfurt Stock Exchange, the emerging markets and resource firms have heavily targeted the Deutsche Group unregulated open market using Canadian, London, and US firms to list. Of the 111 firms listed as of Friday June 17th the following is a breakdown of their origin in Frankfurt:

-          44 UK FSE Listings

-          36 Canadian FSE Listings

-          15 German FSE Listings

-          6 US FSE Listings

-          4 Swiss FSE Listings

-           1 Chinese, 1 1rish, 1 Netherlands, 1 Portugal FSE Listings

Canada and the UK therefore make up over 75% of the listings on the Frankfurt Stock Exchange. Roughly 27% of the listings appear to be by name in Mining, Energy, or Oil and Gas. No were near the 70% listings average of the London Exchanges, but still a very high listing ratio. The second most popular by name would be in Finance.

There have been a number of Energy IPOs and Listings on the Frankfurt Stock Exchange, however, with the recent spikes in Technology IPOs in the US, one would expect over the coming months to see more and more internet and IT IPOs balancing out this year’s listings of foreign companies in the European Exchanges.

The most effective way to list a company in Europe is through the Frankfurt Stock Exchange Open Market, it takes roughly 3-6 weeks utilizing the services of market leader FSE Listings Inc (http://www.fselistings.com)

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