What are the key obligations for fully listed companies?
In considering a London listing, the Company should be aware of a number of key obligations:
- The Company’s shares must be freely transferable and eligible for electronic settlement.
- Retirement of Directors – in practice, the sponsor will require one-third of the board to retire by rotation each year.
- Notice Period – directors’ service contracts to have notice periods of no more than 12 months.
- Remuneration of non-executive directors – non-executive directors not to be remunerated in shares or share options.
- Length of service of non-executive directors – annual shareholder approval required of any non-executive director who has served on the board for more than nine years.
- Shareholder approval – shareholder approval for substantial property transactions with directors and connected persons.
- Restrictions on dealing – no dealing in the two months prior to publication of half year and full year results and insider dealing and market abuse rules apply.
- Filing of accounts – accounts need to be filed within six months of year-end.
The Company will need to appoint the following:
- Investment bank – the investment bank will manage the IPO process and co-ordinate the listing with the other advisors. Often, it will also act as financial adviser, sponsor (a supervisory role required by the Financial Services Authority) and underwriter. Normally, the lead bank acts as global co-ordinator and a number of banks will also be appointed as bookrunners.
- Lawyers – lawyers will be required to advise the Company itself, as well as any shareholder who is selling all or part of its stake as part of the IPO. The sponsor and underwriter will also require lawyers. The Company’s lawyers will be responsible for drafting the ‘back end’ of the prospectus which contains all legal information relating to the company including share capital, material contracts and litigation. They will also manage the ‘verification’ process, which seeks to ensure that the prospectus is not misleading in any way, thus protecting the directors of the Company against any claims by investors for misrepresentation or a breach of section 80 Financial Services and Markets Act 2000, which entitles investors to sue for compensation if there is a materially misleading statement or omission in the prospectus.
- Reporting accountants – these must be separate from the Company’s auditors, although they may be made up of a different team from the same firm. Essentially, the reporting accountant is responsible for reviewing the Company’s financial record and internal systems for potential investors. They will prepare the long form report, the short form report (which is published in the prospectus) and the working capital report.
- PR Consultants – the PR consultants will help to generate positive publicity and interest in the IPO by targeting either investors among the general public or institutions or both.
- Others – the Company will need to appoint registrars, a receiving bank and any other advisors that may be required in relation to its specific business.
Preparing the way for a listing
Careful consideration should be given to the following issues in preparing for a listing:
- Deciding on the method of listing, e.g. an introduction to the market, raising new money, a public offer or a placing to institutional investors.
- Identifying any necessary changes to the board and/or its operations. If the shareholders have identified changes which need be made to the board or the shape of the business these should be enacted as early as possible.
- Ensuring the Company has sufficient internal resources to dedicate to the IPO.
- Beginning the valuation process.
Review of corporate structure and financial reporting
The Company and its lawyers will need to consider how best to approach the listing in terms of the Company’s corporate structure and financial reporting history, given that the Company is not registered in the UK.
Key issues will include:
- Whether the Company itself should be listed or should a UK holding company be created for the purposes of the listing?
- Reviewing and amending, as necessary, the Company’s constitutional documents.
- Have the Company’s accounts been prepared in accordance with International Financial Reporting Standards (IFRS)?
- Should the Company be seeking a primary equity listing or a listing of GDRs?
As regards legal and financial due diligence for the IPO, this will understandably be a time consuming process. Early preparation particularly as regards collating and centralising material contracts is important.
If the Company needs to be reorganised as part of the review of the corporate structure then any tax impact will need to be considered well ahead of time to ensure that any necessary tax clearances from the relevant fiscal authority can be obtained.
Individual shareholders who are disposing of all or part of their stake as part of the IPO will need to consider their own tax position and obtain appropriate advice.
Contents of the Prospectus
The following information will have to be included in the prospectus:
- Details of the Company’s group structure and its subsidiaries.
- History of the Company and its share capital.
- The Company’s business and future plans.
- Information about the sector in which the Company operates and its main competitors.
- Financial information for the last three years.
- Any regulatory regimes to which the Company is subject.
- Applicable corporate governance regimes and a statement of the Company’s compliance with them.
- Directors’ interests in the Company and their remuneration.
- Details of the Company’s constitution.
- Details of any share option schemes either in place or proposed.
- Any ongoing litigation of a material value.
- Material contracts – these will include all contracts with advisors in relation to the IPO, as well as any key contracts the termination of which would have a material impact on the Company’s business, and any other contracts that are not in the ordinary course of business.
- Details of how the proceeds of the listing will be applied.
- Risk factors affecting the Company’s business.
Directors and employees
Directors’ service contracts will need to be formalised since details of them will have to be disclosed for the purposes of the prospectus.
As part of the listing, the directors will be required to complete and sign a ‘Directors Questionnaire’ setting out, inter alia:
- all directorships (whether executive or non-executive) of any company during the last 5 years;
- the number of shares, options, warrants or other securities held in any company;
- the details of any directorships of any company which has been put into liquidation, administration etc.;
- details of any investigation whether criminal, tax, insolvency or securities related;
- details of any UK or foreign judgements involving civil liability for fraud or other misconduct in connection with any directorships; and
- details of all criminal offences other than minor road offences.
The Company will have to be aware of and generally satisfy the ‘best practice’ guidelines applicable to public companies contained in the Combined Code which regulate corporate governance. Disclosure is required in the Company’s report and accounts outlining to what extent they comply with the Combined Code.
Among the more prominent issues raised in the Combined Code are the separation of the role of chairman and chief executive, the need for independent non-executive directors and effective internal controls.
Best practice also typically includes the adoption by the Company of:
- Corporate governance guidelines; and
- Separate audit, remuneration and nomination committees.
How much does a listing cost?
The total average fees for a main market listing depend on the size, sector and structure of the Company coming to the market as this affects the nature and level of due diligence required. The base level for admission costs would normally be in the region of £700,000 – £900,000.
On top of these fees, the Company will need to pay the broker’s fees for raising the funds (unless listing by way of an introduction) which may be in the region of 4-6% of funds raised.
It is difficult to be precise on the length of time for a listing since the process is influenced by so many variables being the size, sector and structure of the Company, the method of flotation being used and the degree and complexity of due diligence which has to be conducted. Most flotations take approximately 6 to 9 months from the time that the decision is made to admission.
The process is complex and time-consuming and identifying a small team within the Company to commit their time and energies to driving the listing may be worth considering as it may be less disruptive than having all the directors continually interrupted during the course of their normal work. However, either approach will still require all the directors at some stage or another to provide documentation and information and review the listing documentation.
The following is a rough timetable for a full listing on the Exchange (I-DAY refers to ‘Impact Day’ – the day on which the company’s prospectus will approved by the United Kingdom Listing Authority (‘UKLA’) and published):