The COVID-19 pandemic has sent shock waves through the global economy and forced huge changes to the way individuals, companies and nations live and work.
It has been a truly testing period. The markets have experienced significant volatility, showing a steepest-ever fall of 30% from peak to trough in the FTSE 100 and FTSE 250. In the week that followed the UK lockdown there were 2.9m trades on London Stock Exchange in a single day – the highest number ever recorded in a single day.
In the face of these extreme conditions, London’s markets have remained open. The ability of the public equity markets to mobilise capital rapidly and at scale has been remarkable. Capital has been made available across asset classes to national governments and early-stage biotechnology businesses, from multilateral development banks to pub chains.
Speed has been essential. Listed companies have rapidly been able to gain access to London’s debt and equity markets to support them during this crisis. In some cases, they are using the proceeds to shore up their balance sheets. In others, the funds will be used to help them return to or maintain their growth trajectory.
It has been a powerful demonstration that access to ongoing capital is made easier when a company is visible, understandable and known to a wide base of investors – which all come with a public listing.
Seldom have London’s experience and capabilities as a mature international finance centre been so clearly demonstrated. The public markets ecosystem – including investors, regulators, professional advisers and London Stock Exchange – has worked together rapidly and constructively to ensure capital markets remained open and resilient. Regulators have acted; temporary measures have been put in place; innovative methods have been implemented. Some of these actions have been specific and short-term in duration; others will play a long-term part in the development of London’s markets well after the pandemic has passed.
The ability of the public equity markets to mobilise capital rapidly and at scale has been remarkable.
Public equity markets
The evidence to date from this crisis indicates that public equity markets are extremely efficient at providing long-term funding at the very moment that companies need it. The investor base has been able and willing to stand behind companies to support them during this period.
Since the start of March, $13.3bn has been raised by issuers across 171 transactions. Six of the top 20 largest European transactions since 1 March have been executed on London Stock Exchange, accounting for almost 20% of total capital raised across Europe during this period.$13.3bn raised across 171 transactions since beginning of March.
The breadth of companies that have been able to come to the market is striking, spanning not only different sectors and sizes but also use of proceeds.
One notable sector has been healthcare and medtech. We’ve seen a high volume of companies raising capital during the pandemic, with 25 deals raising a total $652m since March 1. They include Synairgen, Novacyt, Polarean Imaging, Abcam, Diurnal, Faron Pharmaceuticals, Horizon Discovery, Avacta, Fusion Antibodies and Intelligent Ultrasound. Several, such as Synairgen and Faron Pharmaceuticals, have come to the market specifically to adapt and accelerate their work in response to the COVID-19 crisis. Companies from the retail, leisure and entertainment sectors – such as WH Smith, DFS Furniture, Gym Group and Hollywood Bowl – have come to the market in order to strengthen their working capital positions.
Others, such as tech company Blue Prism, have raised capital from existing and new investors to fund continued innovation while strengthening their balance sheet.
An efficient and orderly market
These capital raises have happened quickly – often taking about one week. Another notable aspect has been their orderliness. They have been executed with a calm and level-headed approach to discounts in line with what we would expect during normal market conditions. Indeed, some companies have seen an immediate share price improvement after their capital raising. Asos, for example, raised £247m in an accelerated bookbuild at a slight premium.
Companies in the private realm trying to raise capital may be forgiven for experiencing more than a twinge of envy right now – the advantages of being a public company in this period have been evident.
An ecosystem working together
The maturity and coherence of the public markets ecosystem has also been visible. A range of temporary measures have been taken to give listed companies extra flexibility while retaining an appropriate degree of investor protection. It is worth recapping them; few other markets in the world have acted with such rapidity and effectiveness. The Financial Reporting Council (FRC), the Financial Conduct Authority (FCA), the Prudential Regulatory Authority (PRA) and London Stock Exchange have between them:
- Allowed companies to delay announcements of preliminary financial accounts for at least two weeks
- Allowed companies to delay announcements of preliminary financial accounts for at least two weeks at the start of the crisis.
- Relaxed the Pre-emption Group Principles to support non-pre-emptive issuances by companies of up to 20% of their issued share capital (ISC), rather than the 5% for general corporate purposes, with an additional 5% for specified acquisitions/investments
- Reinforced awareness and understanding of the prospectus regime for secondary issuances by companies that have been admitted to trading on a regulated market, including a simplified regime for companies listed for at least 18 months and wished to raise more than 20% of ISC
- Set out a revised approach to working capital statements for the duration of the coronavirus crisis. Companies producing a prospectus with an otherwise clean working capital statement will be permitted to disclose key modelling assumptions – which may only be coronavirus-related – underpinning the reasonable worst-case scenario.
- Enabled premium listed issuers undertaking class 1 transactions and/or related party transactions to apply for a dispensation from the requirement to hold a general meeting to alleviate the time constraints imposed by notice periods
- London Stock Exchange enabled a three-month extension to the reporting deadline for the publication of annual audited accounts pursuant to AIM Rule 19 to AIM companies with financial year ends between 30 September 2019 to 30 June 2020
- Relaxed the Dividend Procedure Timetable for all listed companies. London Stock Exchange will permit a deferral period of up to 30 business days for payment of a dividend, but no more than 60 business days after the record date.
Issuers have taken advantage of these temporary measures: 22 companies on the Main Market have taken advantage of the five per cent exemption to raise a combined $6.9bn through accelerated bookbuilds for COVID-19 related recapitalisations.
Between 1 March to 1 June, a similar volume of bonds has been issued compared to the same period last year (259 in 2019 vs 252 in 2020). However, the amounts raised have increased by more than a third – from $130bn to $184bn.
Much of this issuance has come from international issuers, including sovereigns, corporates, financial institutions and supranational bodies. They account for 62% of the amount raised and 63% of the number of bonds issued in March, April and May.
Strong growth has also come from UK incorporated issuers. The amount raised by them grew by 38% compared to the same three months in 2019 ($51.2bn in 2019 vs $70.4bn in 2020) while the number of bonds grew by 19% (79 in 2019, 94 in 2020).
The largest UK corporate issuers included Tesco, BAE, National Grid, BP, Diageo and SSE, while financial institution issuers included Bank of England, Coventry Building Society, L&G, Phoenix Group, Barclays, Lloyds Bank and Natwest.
The average maturity of the bonds grew as well. The bonds issued in this period in 2019 had an average maturity of 8.6 years; that grew to 8.7 years in 2020. Most of the bonds had a maturity in the three to ten-year range with a few 30-year maturity tranches as well, showing an interest in securing funding for both short and long-term activities.
Throughout this crisis, London’s markets have continued to focus on – and lead in – the provision of sustainable and social finance.
Social and sustainability bonds, for example, play an important role in directing funding to countries, sectors and people across the world who are being heavily impacted by this pandemic.
London has supported multilateral agencies. African Development Bank’s (AfDB) $3bn Fight Covid-19 social bond, the second largest social bond to date to be issued in the capital markets, was issued on London’s Sustainable Bond Market in April. The International Finance Corporation (IFC) issued its $1bn social bond – its largest ever – to support emerging markets.
In April, we announced a three-month admission fee waiver for any social or sustainability bonds on Sustainable Bond Market whose proceeds mitigate the impact of COVID-19. It was our contribution to help support these bonds. This move was widely welcomed and has subsequently been followed by other markets.
Resilience and innovation
During this crisis, London Stock Exchange Group has demonstrated resilience and innovation.
The resilience of our infrastructure has provided certainty; markets have been able to function efficiently throughout the crisis.
Our innovations are always focused on how we can best support issuers and investors. They are coming to the fore during this period.
Our relationship with fintech PrimaryBid, which was launched in November last year, helps issuers to reach the broadest set of investors. It has been deployed in multiple placings over recent months including FTSE 100 constituent Compass Group’s £2bn capital raise, enabling retail investors to access capital raisings on the same terms as institutional investors.
Digital channels such as Spark Live have been introduced to support issuer communications with investors, providing issuers and partners the ability to broadcast their corporate events live and on demand through our Issuer Services platform. It may well be that many recently adopted forms of digital investor communications will be here to stay. According to this survey, the great majority of investors would be willing to commit capital after meeting management teams and analysts via video conference and many say these ways of communicating are more efficient.
We have digitised our events and leveraged our network to deliver timely content to issuers on range of technical considerations through the current crisis. Our webinars are achieving significant reach.
Secondary markets innovations, via a single connection to our LSEG data centre, provide investors access to London Stock Exchange intraday trading and closing auctions plus Turquoise innovations such as Turquoise Plato midpoint and electronic block trading. Trades in large ‘blocks’ have helped achieve continuous investment during days of high activity. This is demonstrated by the higher proportion of midpoint block trading that has occurred during this period than comparable periods, such as during 2016.
We will take these lessons forward and continue to encourage further innovation.
The economic and social benefits of this capital raising activity can only be measured over time.
But one key lesson can already be drawn: when long-term capital is required with efficiency and speed, there is no place like the public markets.
Originally Posted on June 3, 2020 – Public Markets Show Their Mettle: How London’s Dynamic Markets Are Responding To COVID-19
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