Issuers in Europe are concerned about the fees being charged to raise capital says Naresh Aggarwal, Associate Policy & Technical Director, at the Association of Corporate Treasurers (ACT), while James Deal, Chief Operating Officer at PrimaryBid outlines how retail investors can access primary markets more effectively.
- Uniliver businesses are being pulled together between London and Euronext Amsterdam after which the Company will become the single parent company of the Unilever group.
- London Stock Exchange Group: Helium One Global and N Brown Group still to launch expected on 23rd December.
- Nasdaq Nordic: Last week saw online bank Nordnet list with an €885 million IPO;
- Wiener Boerse: Last week had Aventa AG on 23rd and Biogena Group Invest AG on Friday 27th:
- Euronext: Alchimie listed on Friday 27th
Disclaimer: Primary Markets TV is a news update and intended for informational purposes only. Primary Markets TV does not provide investment advice or recommend investment products. Please consult a professional investment advisor when making investment decisions.
Dan Barnes Welcome to Primary Markets TV for Europe, Middle East and Africa – your update on newly issued securities. I’m Dan Barnes. Today, 30th November, we’re seeing the cross-border merger between the different Unilever businesses across London and Euronext, Amsterdam, after which the company will become the single parent company of the Unilever group. We have Helium One Global, pricing its IPO on the 5th of December on the LSE this week, with an expected 6 million pound issue. N Brown Group still to launch, expected on the 23rd of December, not 23rd of November, as noted last week, with 100 million pounds issue. On Nasdaq Nordic last week, we saw online bank Nordnet list with an 885 million euro IPO. And in Vienna, on Wiener Boerse, we saw Aventa AG the 23rd last week, and Biogena Group on Friday the 27th. Euronext saw Alchimie list on Friday 27th, and Biogena in Paris on the 24th. I am now joined by Naresh Aggarwal, Associate Policy and Technical Director at the Association of Corporate Treasurers (ACT), and James Deal, Chief Operating Officer at PrimaryBid. Guys, welcome to the show.
Naresh Aggarwal Thank you.
James Deal Morning.
Dan Barnes Naresh, what is the environment for your members at the moment when they’re trying to raise capital?
Naresh Aggarwal Well, I think it’s a tale of many stories, so we know that for the well-organized, well-structured and large organizations, the markets remain very positive and supportive. Whether they’re looking at equity, debt markets or just renewing bank facilities, there’s definitely clearly a lot of liquidity available. We’re hearing some price pressure with bank debt and the rates being raised as part of renewals. I think that just part of where we are in the cycle, but for the large, well-organized businesses, it is still very, very positive. And despite things like Brexit, they’re all very positive around getting through the next year or two. I think for the smaller organizations, it’s definitely a very, very different story. And I think there is a real challenge around how the markets are starting to dislocate, and it’s really creating a lot of challenges for organizations. We’ve seen, they can raise equity if they want to, but it’s at a very, very expensive rate. And the choices are becoming much more difficult to really assess between bank debt and actually issuing equity. Part of the change for a lot of our members is that the smaller cap and the mid-cap areas, where they either haven’t gone to the market before, some of the teams are quite new, unfamiliar with some of the processes. I have to say, some of them are quite shocked by the fees in paying, especially with their own expensive roadshows. Anecdotally, one of our members in the US said he’d never believed last year he could write half a billion dollars sitting in his basement, and not actually leaving his house. So there are some real questions about justification over some of the fees which organizations pay, even the well-run and regular issuers. I think there’s still some concern and expectation of fees actually coming down. One of the things that we talked about last year, a lot is around the rise of ESG. I think it’s really interesting how despite COVID-19, it still remains a very important consideration, primarily for the investor community. And because I think it’s still very emerging, questioned for analysts and for treasuries, there’s still quite a wide range of maturity in terms of questions. So we hear some organizations, some investors ask treasuries, ‘what type of green bond framework you apply? And if you apply one?’ That’s the limit to the questioning. Others get some really tough and really interesting questions, and actually go away and rethink how they’re either presenting their case or actually looking at some of their ESG activities, and they see as a real positive. So I think there’s a growing maturity, but I think there’s a lot more we can do around educating both participants.
Dan Barnes And of course, the European project has been driving people towards raising capital over the capital markets rather than the bank loans. What are the costs of accessing capital across those two different mechanisms at the moment? And how do you see popularity changing?
Listening to a lot of the treasuries, and I spent half of my time talking to treasuries, both here in the UK, the US and Europe, big and small. Certainly looking at the debt markets, raising debt and public issues is definitely pretty cheap for most organizations. It’s the bilateral facilities which are becoming more expensive. That is a sign of the fact that the banks are under pressure to raise margins, as they’re going to really struggle next year with increasing loan loss provisions. So I think they’re looking to increase their revenues. The corporates are obviously a good target for them, but very clearly where good quality issuers are issuing in the debt markets, it’s still pretty good.
Dan Barnes James, turning to you, how have retail investors increased in importance relative to institutional investors as a source of activity in the primary markets?
James Deal Well, if you look at ownership of equities in the UK today, direct individual investors represent about 15% of the market. If you go back just for a bit of history, interestingly, in the 1950’s, individuals were 100% of the market. There were no institutions. By the mid 80s, the UK market was about 30% owned by individuals. It hit a low in 2009 of some 10%, and it’s been rising since then. You’ve seen a spike this year in terms of trading volumes and ownership of equities by individuals. And I think that number is set to keep rising, not least because of the availability of information and the low cost of being able to trade shares as an individual. And in terms of strategically what matters here, if you look at the institutional end of a company registered, so that’s the other 85%; it’s increasingly passive in terms of tracker funds and electronic mechanisms are replacing the, dare I say, the human element. So in that regard, it’s very valuable for any company to nurture and support the individual retail ownership on its public company register.
Dan Barnes What difference is the access that institutional investors have to primary markets? What is the difference between that and typically how retail investors access primary markets?
James Deal From a point of view of capital markets – when companies are raising new capital to primary issuance of equity – there is a European set of rules under the prospectus directive, which of course we will fall out of as we exit Europe. But those rules were put in place many years ago to protect the retail investor. And of course, all that’s really done is block out the retail investor, because as a company, you prefer not to have to issue big documents as part of any issuance. It’s costly, time consuming and distracting and so on. And so, there’s been this misperception on who is the retail investor? It’s either been seen as a missed sold, a widow and orphan, or at the other end of the spectrum, of course, is a day trader who’s in one minute and out the next. The reality actually is the majority of retail investors have a long term horizon of 3-5 years. And typically they are there, being supportive of companies they own, so they come in and buy more. So retail represents strategically, a very valuable source of capital in terms of day-to-day market support and liquidity. And look at the data from all of the trading platforms; it’s testament to the fact that the holding periods by retail investors are far longer than anyone would care to realize otherwise.
Dan Barnes And how are you actually changing access for retail investors into the primary process?
James Deal So it’s primary bid. We are a web- and app-based solution that allows the retail investor to come in to a transaction, when a company is raising capital on the same terms at the same time as the institution. The world around us has evolved so much in terms of technology, and yet capital markets have not changed in any way for the last 20-30 years. So PrimaryBid provides, as I say, an access point, on the basis that when companies raise capital, it’s normally quite time constrained. To be able to reach individual investors is not easy, given the fragmented nature of thousands of individuals on a register. And that’s what we solve for, so we put the transaction straight into the palm of the investor, either via your iPhone or indeed for your PC. And we give you full information, and as I say, pricing wise, the same terms as the institution. You transact directly either via your phone or via your broker. And we settle the shares directly to wherever your brokering account may be.
Dan Barnes That’s fantastic. James, Naresh, thank you both very much.
Both Thank you.
