Why a Dual Listing in the U.K.
Capital markets across the world have become increasingly globalised with listed companies often looking to seek a ‘dual listing’ to maximise opportunities for growth, investment and opening up the company to international investor exposure.
A dual listing can bring significant benefits to a company and provide an additional platform for its growth internationally. The London markets are known for their international outlook, with more international companies listed in London than on any other major international financial centres. The London Stock Exchange prides itself as being the “world’s most international exchange” with approximately 36 per cent. of the companies that are listed on the London Stock Exchange comprise international companies which have their primary business located outside of the U.K.
Recently, the regulatory requirements for listing on the London markets have been subject to a review and significant overhaul with the intention of making them more competitive and attractive to companies, particularly overseas companies, looking to list on the London Stock Exchange.
In this article, we look at the key reasons for carrying out a dual listing in London and the process involved – as well as providing background on where and how companies can dual list in the U.K.
What are the Listing Venues in London
The London Stock Exchange operates two principal markets in the U.K.: the Main Market and the AIM market. The Main Market is made up of different segments with the two main segments1 for the purposes of this article being the ‘Equity Shares - Commercial Companies’ (ESCC) segment and ‘Equity Shares - Secondary Listing’ (ESSL) segment. The new ESCC listing segment is typically used by large companies looking to benefit from an increased profile and highly liquid market and replaces the old ‘Premium’ and ‘Standard’ listing segments. In fact, it is only with a ESCC listing that a company can be eligible for inclusion in the FTSE indexes. To maintain a Commercial Companies listing, companies must meet the U.K.’s highest standards of regulation and corporate governance, and the costs associated with this are higher as a result. The ESSL is also typically used by larger companies with the difference being it is only available to non-U.K. incorporated companies (noting that non-U.K. incorporated can still choose to dual list on the ESCC).
The London Stock Exchange’s AIM market is the U.K.’s leading stock exchange for growth companies. The exchange hosts a wide variety of companies from early stage and venture capital backed ones to more established companies seeking access to growth capital. It is probably the most successful growth market in the world which attracts a truly international range of companies.
A challenger to the AIM market’s status as “the most successful growth market in the world” is the Aquis Growth Market of the Aquis Stock Exchange (Aquis). The Aquis Growth Market is made up of two segments, comprising the Access segment and the Apex segment. The Apex segment is aimed at larger, more established companies, whereas the Access segment is designed for early-stage companies and SPACs.
What are the Key Benefits of a Dual Listing in London?
While there are numerous reasons why a company may seek a dual listing in London. We have highlighted some of what we believe are the key benefits:
Increased Corporate Profile: London markets are the most high-profile in Europe and one of the most well known internationally. This can help your company quickly build a stronger corporate profile and in turn look to enhance liquidity upon listing.
Access to a larger pool of capital: The London capital markets continue to support dynamic companies across a variety of sectors and from around the globe, enabling a company dual listing in London to potentially access deep pools of international capital, including many of the world’s largest and high profile funds.
Better Liquidity: A dual listing can improve a company’s liquidity given that its shares will be traded on more than one market. Listing in London may significantly increase the number of interested investors available, as the company will often seek to access investment from across the U.K. and even other European investors.
Build Investor Confidence: London markets are globally recognised for their high standards of robust regulation and oversight. As such, prospective investors will have confidence in the stable investing environment of London.
Less Strict Admission Criteria: In comparison to other international stock exchanges, ESSL, AIM and the Aquis Growth Market, have less stringent admission criteria for companies intending to dual list. In particular, the junior markets open up opportunities for small and medium-sized enterprises (SMEs) to be able to dual list who may otherwise not be able to afford or who do not have the necessary infrastructure, know-how to deal with and/or comply with complex regulatory requirements. On the other hand, the ESSL presents an opportunity for larger more established companies to consider a more straightforward process to dual list its shares.
Building European Relationships: London is still home to the biggest pools of capital in Europe and is internationally recognised for this. By listing in London, there is an ability to leverage the listing to build and/or strengthen relationships that your company and businesses may have with current or prospective U.K./European investors. Despite the U.K.’s departure from the European Union, these links look set to continue for the foreseeable future.
Lower or No Minimum Market Capitalisation: Both the AIM market and the Aquis Growth Market have the advantage of having no minimum, or a lower minimum market capitalisation requirement. This is a benefit to SMEs looking to list and raise an amount that is tailored to the needs and growth of the business. ESSL (along with an ESCC listing) has a relatively higher minimum market capitalisation required of GBP30 million.
Streamlined Admission Process and Fast-track Admission Options: On the AIM market and Aquis markets, the admission process is more streamlined and can mean that a dual listing can be achieved in a shorter timeframe than on other exchanges. This includes a “fast track” procedure for those companies that are already listed on one of the internationally recognised stock exchanges such as the Toronto Stock Exchange (TSX), New York Stock Exchange (NYSE), NASDAQ or Australian Stock Exchange (ASX). On AIM, there is also a streamlined admission process called the AIM Designated Market Route that is applicable for certain companies with securities already traded on an AIM designated Market2 such as the NYSE, TSX, ASX, Johannesburg Stock Exchange (JSE) and NASDAQ. Similarly, on the Aquis Growth Market, there is the ability to seek a fast-track admission. For example, if a company already trades on a ‘qualifying market’, (which includes the above-mentioned international markets) and the company meets the relevant fast-track eligibility criteria, it can dual list on the Growth Market with relative ease and speed. This means that these companies will usually not need to produce the standard admission document (which, in itself, is more limited in scope and requires less disclosures than a prospectus required for admission to the Main Market of the London Stock Exchange) required to list on these markets, but rather a more simplified disclosure document with more limited disclosure requirements is just produced. The new ESSL segment on the Main Market is specifically designed for non-UK incorporated companies that have a primary listing overseas to dual list. The rules for this new segment are similar to the old ‘Standard’ listing segment and generally maintain the old “Standard” listing rules, namely, that compliance with the rules of your primary listing exchange and jurisdiction will be sufficient. In addition, companies in this category are permitted to report in accordance with a corporate governance code of their choice. The FCA has described this category as being specifically designed to have limited scope and to accommodate overseas companies whose domestic company or rules flowing from their primary listing venue may make it more difficult to meet the requirements of an ESCC listing.
Lower Requirements for Free Float: There is no strict minimum percentage of shares to be held in public hands for an AIM quoted company however, this is subject to the nominated adviser assessing suitability - the benefit being that owners of AIM companies may have the flexibility to maintain a higher level of control over the company. For the Access listing segment of the Aquis Growth Market and both ECCS and ESSL segments of the Main Market, now only require 10 per cent. of securities to be in held public hands on admission.
Potential Tax Benefits: There are various U.K. tax reliefs and exemptions that apply to both AIM and Aquis Growth Market quoted shares. If the relevant conditions apply, there can potentially be valuable tax benefits. However, it is important that companies seek specific advice as there are exceptions that can disqualify investors from certain tax benefits. These potential tax savings can be attractive to certain potential investors and help to encourage potential investment in companies looking to dual list.
What is the Dual Listing Process?
The general dual listing application process on any of the principal exchanges will involve appointing a Sponsor (for listing on the London Stock Exchange (while ESSL does not strictly require a Sponsor, one is typically still engaged for a dual listing), Nomad (for AIM) or Corporate Adviser (for Aquis), as well as other advisers including a law firm, brokers and reporting accountants. For a dual listing on the ECCS or ESSL. the company will need to prepare a prospectus that is approved by the Financial Conduct Authority3.
For dual listing on AIM or the Aquis Growth Market, an admission document may need to be prepared instead of a prospectus. Both the prospectus and admission document will include details about the company’s business and strategies, its directors, financial position and any experts reports that may be required by reason of its particular sphere of activity. The prospectus or admission document will be prepared in conjunction with the aforementioned advisers and involves due diligence and verification on legal, financial and tax issues. The company’s lawyers will also advise on drafting and negotiating any agreements to be entered into in connection with the dual listing, as well as any reorganisation or restructuring that may be necessary for admission.
Please see our comparison table here for a more in-depth overview and comparison of the various eligibility criteria and ongoing obligations for listing in London.
Other Important Considerations for a Dual Listing in London
For companies considering a dual listing, there are various considerations they need to take into account before proceeding:
Costs and expenses: There are various initial costs and expenses to consider including engaging and instructing local counsel and financial advisers, and any costs related to increased regulator compliance. While companies should carefully consider their suitability for a dual listing, the advantages given by greater access to capital as well as the lower costs on brokerage commission can often outweigh these considerations.
Cross-market considerations: A company with a dual listing will need to deal with various new cross-market considerations, such as liaising releases of public announcements. While not particularly onerous, it is nonetheless an important logistical consideration for dual listed companies and will require advisers across different jurisdictions working in tandem.
Corporate governance: Ahead of dual listing, companies need to consider any potential changes to their board structure, directors, company constitution and all other relevant corporate governance considerations that they may be subject to change when implementing a dual listing. For example, it is often preferable and of benefit that a company has a director based in the U.K. who has LSE/AIM/Aquis experience to ensure compliance and good corporate governance. Although the ESSL dual listing state that there is no additional corporate governance code required and companies can seek to rely on their own domestic corporate governance code, some may choose to follow best practice in London.
Time: A dual listing is going to create bigger demands on a company’s board, directors and personnel with regards to time management. To better capitalise on the benefits of a dual listing, companies should consider the needs of having a more significant presence in the U.K. once the company has listed as a way to get the most out of the dual listing.
Liabilities: The company and its directors may take on certain additional liabilities that are associated with the dual listing. These are likely to include any relevant ongoing obligations which arise either under statute or applicable stock market rules and/or the agreements that will need to be entered into with the financial adviser in connection with the listing.
How Can Our Equity Capital Markets Team Help
The Laytons’ Equity Capital Markets team are experienced in guiding and assisting clients through all the steps required in dual listing a company in the U.K., having brought many overseas listed companies to London, spanning a number of different internationally recognised stock exchanges. If you are considering a dual listing, then please get in touch with us to discuss things further.
Related Expertise
Disclaimer: This publication is provided by Laytons LLP for informational purposes only. The information contained in this publication should not be construed as legal advice. Any questions or further information regarding the matters discussed in this publication can be directed to Laytons LLP and its Equity Capital Markets team.