New issuance lags equities boom

  • 01 Mar 1998
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The continued strength of the UK equity market has caught virtually everyone off-guard, even though -- as plenty of investors have discovered to their cost -- the bull market has recently been restricted to a handful of sectors and companies.

Analysts say the market's apparently unstoppable rise is being driven more by liquidity factors than by value considerations.

Retail investor flows and increased participation from foreign investors are creating new sources of demand, while the high level of share buybacks is draining stock from the market.

Given the benign market conditions, bankers are surprised by the lack of primary market activity.

With the exception of a handful of large flotations and block trades, new issue business -- in the straight equity and equity linked sectors -- has been slow.

This is partly because the themes of privatisation and corporate restructuring which are driving primary market activity in Europe are already well played out in the UK.

But bankers say the lack of primary market activity is also the result of a number of outdated, restrictive and entrenched systems that are unique to the UK capital-raising market -- and whose survival is all the more mystifying given that virtually every major UK broking firm is now owned by a foreign bank. It is time these were scrapped, the critics say.

One of the most curious phenomena about London's 'Sparkling Monday' -- February 2, on which the FTSE-100 Index rose by 140 points -- was that, as the index was cruising through the 5,600 level for the first time ever, there were more losers than winners among the UK's 100 largest quoted companies.

The reason is simple enough: the market owed its strength almost exclusively to the twinned impact of the rebound the previous night in Asia in general and Hong Kong in particular, and to the news of the (now collapsed) £100bn mega-merger in the drugs sector between Glaxo Wellcome and Smithkline Beecham.

As a result, quoted stocks needed to show demonstrable links either to Asia or to the speculative frenzy surrounding potential merger candidates in order to participate in the surge.

The fact that UK equities have generated so much of their sparkle this year from apparently extraneous factors partially explains why most stockmarket forecasts already seem to be woefully wrong in their short term prognostications about the direction of the market.

In December, London-based insurance giant Legal & General published the one year target levels for the FTSE-100 of 11 forecasters in its monthly update, Fundamentals.

Of this 11, Chase, CS First Boston, Goldman Sachs, HSBC James Capel, Legal & General itself and Merrill Lynch all forecast a FTSE level in 12 months times of below 5,600.

Kleinwort Benson and UBS both pencilled in targets of 5,600, while only BZW, NatWest Markets (both 5,700) and SBC Warburg (6,000) predicted levels which would suggest there was any upside in the market following Sparkling Monday at the start of February.

Separately, and reading the runes a little more optimistically, Morgan Stanley also predicted a happier year for the UK equity market than many of its competitors -- noting early in 1998 that "UK profitability and creditworthiness are on a secular upward trend, with the corporate sector in better shape on both counts than in the last business cycle."

On that basis, Morgan Stanley felt comfortable in predicting a year end level for the FTSE-100 of 6,000.

If most analysts' forecasts for where the FTSE-100 will end the year prove to be woefully short of the mark, they will by no means be the first to have called the market's direction incorrectly.

Nor -- presumably -- will their livelihoods depend upon their forecasts. The same can scarcely be said for Britain's leading pension fund management companies, which in recent years have miscalculated the direction of the equity market horribly.

Figures released earlier in the year by Combined Actuarial Performance Services (Caps) make ghastly reading for the UK's four largest pension fund managers -- Gartmore (owned by NatWest), Mercury (now owned by Merrill Lynch), PDFM (now part of the giant SBC-UBS stable) and Schroders (the future ownership of which is a constant source of speculation).

All four sharply underperformed the median average (of 67 managers) of 16.6% in 1997, while PDFM's public declaration many months ago that UK equities were sharply undervalued and that it was moving into cash as a result is already looking to have backfired drastically.

In February, for example, it was reported that Railpen, for one (the pension fund of Britain's rail workers) had lost patience with PDFM's cautious stance on the UK's lustrous equity market and withdrawn a fund management contract worth £1bn.

In fairness, it is easy enough to understand forecasters' caution towards the end of 1997 about the direction of UK equities. By any historical, fundamental yardstick, equity valuations in the UK are looking frothy. They are being made to look frothier still in certain sectors by merger mania driving a number of companies to the sort of P/E multiples, which had investors in Japan twitching when the Nikkei-225 was pushing towards 40,000.

The excitement revolving around the pharmaceuticals sector following the news of the now aborted Glaxo Wellcome/Smithkline merger, for example, left both stocks trading on P/E ratios of 40 -- nose-bleed territory anywhere other than Japan.

But for investors to focus on valuation yardsticks with exaggerated tunnel vision is to overlook a mismatch between supply and demand in the UK capital market of unprecedented levels.

The figures are compelling: according to estimates published at the start of this year by NatWest Markets, there will be a net contraction in the supply of equities this year to the tune of £3.75bn. This compares to a net supply in 1997 of £13.5bn, and to totals in excess of £10bn in 1987 and in 1991, 1992, 1993 (when the figure rose above £20bn) and 1994.

In tandem with this reduced supply of new stock is continuing demand for equities from a number of sources.

Andrew Learoyd, executive director of equity capital markets at Goldman Sachs in London, points out: "In spite of a gradual shift away from historic weightings in equities, UK institutions' buying interest in the UK equity market is still strong, driven by high levels of liquidity and strong cash flows. And US investors in particular and foreign investors in general are encouraged by what has been happening in the UK economy, so there is plenty of demand from overseas as well."

Two other important sources of demand are retail investors and the corporate sector. Retail demand, fuelled in no small measure by tax breaks arising from the personal equity plan (Pep) incentives launched by the old Conservative government, has continued to soar over the last year.

A year end update published by the UK's Association of Unit Trusts and Investment Funds (Autif) noted that "1997 was the year of the index fund and of UK growth funds in general. The UK growth sector was the most popular sector overall among both retail and institutional investors, with private investors adding a record £2bn (28% of the net retail total), and institutions a further £333m."

Some of the retail buying of 1997, according to Autif, was clearly a fall-out from the Asian crisis, with investors broadly concluding from the upheavals in the region that the safest place for their savings was in the home market.

"1997 saw private investors shun Far Eastern funds," notes the Autif review, "making them the least popular retail funds of the year and causing a net £406m outflow of private money from the three Far Eastern sectors by the end of December."

Another trend among retail investors detected by the review is that saving for the long time via the stockmarket is palpably no longer something which is viewed as solely the preserve of the sophisticated or the especially well-heeled investor.

According to the association, there are now almost 10m unit trust holders in the UK (around 20% of the total population). "Penetration of lower income groups is rising sharply," notes the review.

"The Pep has begun to build a savings culture throughout the population and we must ensure that the ISA [the new savings scheme with which New Labour plans to replace the Pep] reinforces this trend and does nothing to obstruct it."

Helpful though retail demand may have been at the margin for UK equities in 1997, this pales into insignificance in comparison with the powerful demand for equities by the corporate sector.

"The major theme in the UK equity market today," says James Leigh-Pemberton, head of equity capital markets at Credit Suisse First Boston in London, "is the strength with which the market has been underpinned by institutional cash levels.

"One good example of this are the purchases of UK quoted companies by overseas acquirers which is having a meaningful impact on the amount of cash coming into the UK institutional market from overseas. This is not old money circulating around the market, but new money coming from new sources.

"If you add that to what is being generated by share buybacks and net it for new issue activity, which has been pretty light, you are left with a powerful liquidity argument supporting the market."

Others agree that corporate activity is playing a critical role in supporting UK equity valuations. "The theme of the last 12 months, which will accelerate rather than decelerate over the next year, is equity retirement rather than equity issuance," says Learoyd at Goldman Sachs.

"There is plenty of liquidity in corporate UK PLC as a result of a prolonged period of economic upswing and, particularly following the proposed ACT changes, companies are focusing on more active management of efficient balance sheets and returning surplus cash to shareholders."

The share repurchase phenomenon is one which is sweeping Europe as a whole, but the UK is clearly acting as the pathfinder in the process.

According to research published in January by JP Morgan, UK companies accounted for 68% of all share buyback programmes in Europe between 1990 and 1996.

While this proportion dropped in 1997 to 55% of the total announced volume of more than $47bn (a threefold increase over 1996's total), it is clear that the UK is still waving the flag for the concept of share buybacks, which are popular among companies and their investors alike.

"The surge in overall share repurchases is not surprising given the benefits of the technique," notes the JP Morgan bulletin. "Share repurchases replace equity with lower cost tax-deductible debt, raise earnings per share, and are a more flexible means to distribute cash to shareholders compared to the ongoing commitment of a dividend."

For investors, meanwhile, JP Morgan found that in the 180 days following the announcement of a share repurchase, 41 out of 67 companies analysed generated positive average returns of 19.3%, with only 26 underperforming by an average of 9.4%.

This overall balance is clearly positive for the equity market as a whole, generating excess cash for institutions which then -- presumably -- needs to find a home as it is re-invested.

But this is not to say that equity investors will respond with jubilation to any share buyback announcement, or to buybacks which appear to have been launched for the sake of it. The JP Morgan study found clearly that investors will be much more appreciate of companies which have little or no debt distributing excess cash.

"Conversely," the report adds, "when a company is more leveraged, investors are negatively surprised on the announcement of a share repurchase, as it suggests there are no more positive cashflow generating investment opportunities. Also leveraged companies may be penalised if investors believe that cash should be retained to weather cyclical downturns."

Strong performers identified by JP Morgan in the UK context included a raft of the electricity companies and Reuters, while underperformers were Taylor Woodrow, Iceland Group and BAT Industries.

All the indications are that 1998 will once again see substantial levels of buyback programmes from the UK corporate sector. Nowhere is this more apparent than in the personal banking sector, which is embarrassed by mountains of surplus cash which -- in an ideal world -- it would like to put to work through value added acquisitions.

In February, Woolwich led the way by announcing that it would return some of its surplus cash to its investors in the form of a £100m "special dividend" worth 6.5 pence per share.

This, according to bank analysts, is probably only the tip of the iceberg as far as the potential for UK banks to channel money back to shareholders is concerned.

With surplus capital estimated in a Salomon Brothers report published in February of £960m, Woolwich was under less pressure than some of the other players in the sector to do something constructive with its cash pile.

According to the report, Alliance & Leicester is sitting on surplus capital of £1.134bn, while the most deep pocketed of them all -- Halifax -- has a surplus of £3.5bn.

With no more than a few large IPOs expected in 1998 -- the main ones being Thomson Travel and Computacenter, which are expected to raise £1bn apiece -- it is probable that the supply-demand imbalance will continue to support equity valuations this year.

The process was already clearly detectable in 1997 when new issue activity in the market was patchy. An early transaction in the UK which was launched in February and ended the year with a slew of nominations for the best IPO of 1997 worldwide was for Avis Europe, which raised £270m and was led by Merrill Lynch and NatWest Markets.

"If we ever needed a case study on how to price an IPO successfully, Avis Europe provided it," says Roger Aylard, managing director of equity primary markets at NatWest Securities in London.

"The company was very impressive in terms of its roadshow because there were a number of issues which needed to be addressed. First, it had previously been floated and subsequently bought out, which provided an interesting background which needed to be explained. And secondly there was a perception among some investors that the company was excessively exposed to movements in the second-hand car market, which was not the case."

In spite of these potential pitfalls, the Avis Europe issue was hugely oversubscribed, allowing the leads to price the deal at £1.24 per share -- which was close enough to the top of the £1.08p to £1.26p price range to keep the company happy, while simultaneously offering a small concession to investors by not extracting the very last penny and asking for the highest point of the range.

"It was one of those issues which simply worked like clockwork," says Aylard. "As a broker, by definition, we stand in the middle between the company and the investors, with the dual aim of maximising the price for the vendor and achieving the fairest deal for the investors. Keeping that balance is critical to doing the job well and in Avis we found that balance pretty well."

Equally critical to the success of the Avis IPO was drumming up substantial retail interest and ensuring that the corporate story was marketed sufficiently aggressively in the US, where the Avis name is well known, but where Avis Europe itself has no physical operations.

Evidence that this was successfully achieved comes from Merrill Lynch in London, where John Jensen, managing director of equity capital markets, says that one year after the Avis Europe flotation the company has more of its shares held by US than by UK institutions.

Another landmark sale in the first half of 1997 was the IPO of life insurance company Norwich Union -- the first ever demutualisation and flotation of a company in the sector which involved the simultaneous distribution of shares worth £3.8bn to investors and a capital raising of £2.4bn.

The Norwich offering was led by Dresdner Kleinwort Benson and attracted phenomenal demand from retail investors -- who had been encouraged to utilise their £3,000 tax free single company Pep allowance on the issue -- as well as from institutions.

Retail investors were attracted to the issue by a generous discount which saw their allocation priced at £2.70 compared with an institutional price of £2.90, which was at the top of the institutional range of £2.40 to £2.90.

Retail demand for the Norwich IPO was four times oversubscribed, meaning that individual allocations needed to be scaled back, while the institutional bid saw the book 10 times oversubscribed.

Investors who resisted the temptation to stag the issue in the immediate aftermath of the sale had been well rewarded by early 1998, with the share price rising well above £4.50 by February -- a whopping 66.6% gain for retail holders of the stock and a 55% appreciation for institutions.

The Norwich deal was followed in July with a £4.6bn flotation from non-precious metals company Billiton, for which Robert Fleming and UBS acted as joint global co-ordinators.

This was oversubscribed by 2.3 times and priced towards the lower end of its £2.10 to £2.40 range, but unlike Norwich Union the issue has struggled in the secondary market since its launch.

Although the fourth quarter was inevitably the most difficult for the UK's IPO market -- in common with all capital markets -- a number of deals were successfully launched in the teeth of the Asian meltdown.

At NatWest, Aylard says that the 225.6m sale of shares in Bovis Homes, the UK housebuilding subsidiary of Peninsular & Oriental Steam Navigation (P&O) -- for which Hambros Bank acted as the sponsor with NatWest Markets as lead broker -- was "perhaps the highlight of the year".

He says: "It was a challenging assignment for us because, although we felt that Bovis was a great company, there was a consensus view that the sector suffered from an oversupply of housebuilding stocks.

"But we insisted that in spite of this and in spite of the Asian turmoil we would be able to deliver on price, and we were confident that if we put the story across correctly the deal would be well."

The challenging environment faced by the equity market in the last quarter of 1997 was also reflected in the pricing of the primary market issue for Newsquest, the regional newspaper publisher, which was led in October by SBC Warburg Dillon Read and Merrill Lynch.

This raised £225m and was priced at the bottom of its indicated range of between £2.50 and £2.90, meaning that the company needed to be satisfied with a 20% discount to the sector.

Another float which braved the Asian crisis in December was the sale of 75m shares in Energis, the telecommunications division of National Grid.

Raising just over £200m, this represented 25% of the company's share capital. In spite of the chaotic volatility in global stockmarkets at the time of the issue's launch, demand weighed it at an oversubscription level of almost three times.

This allowed the lead manager, Dresdner Kleinwort Benson, to price the sale at £2.90 -- the mid-point of its indicated £2.50 to £3.25 price range. Broadly placed between the UK and the US -- where the shares were listed on Nasdaq -- the stock has performed well in the aftermarket, rising above £3.50 by the middle of February.

Aside from IPO activity in the UK equity market in 1997, a principal indicator of continued strong demand among institutions came in the form of a resoundingly successful bought deal arranged in May by Goldman Sachs for British Petroleum (BP).

This £1.22bn placement of £170m BP shares on behalf of the Kuwait Investment Office (KIO) was the largest block trade the UK market had ever seen and was widely acknowledged as a blow-out success, comfortably selling out by 11.00am the morning after the sale was launched.

For the US investment bank, it was a case of 'very nice work if you can get it': it had bought the BP block at 710.5p -- a discount of 3.5% -- and sold them on to investors at 7.16p the following morning.

For Goldman Sachs, the BP transaction was the bank's second UK bought deal of the year -- following a £630m block trade in Guinness on behalf of LVMH -- and Goldman's Learoyd says he was pleasantly surprised by the market's response to both.

"Our perception at the time," he explains, "was that, if you look back at the history of the London market, £500m was probably about the limit for a block trade. Very few had ever got to that level, let alone beyond it, which meant that we had to think long and hard about whether the market had the capacity to absorb a deal the size of the Guinness block."

He adds: "Bear in mind that this was quite different from the building society demutualisation auctions that obviously had the benefit of indexed demand from institutions, which Guinness did not have given its large free float. Nor at the time did the company have a particularly exciting story to tell.

"The research community was generally at best neutral on the prospects for the stock price, and the main story came later in the year with the Grand Metropolitan merger. Against that background, we were happily surprised at the amount of demand we were able to generate for a £630m deal. Taken together with the BP deal, this shows how mature and international the market has become. We would not have even have contemplated doing block deals of this size a short while ago."

Less spectacular in its size, but also highly satisfactory from the arranger's viewpoint, was the first major bought deal of 1998 in the UK market.

This was a £260m deal for Great Universal Stores (GUS) bought by Morgan Stanley in mid January at 712.5p -- or a 4.5% discount -- and successfully resold by the US investment bank at 719p.

Also languishing from undersupply over the last year or so has been the UK's convertible market. One notable exception came in June when the Compass Group launched a £220m convertible via NatWest Markets and HSBC, which was one of the largest of the year -- although this coincided with unfortunate timing, given that it was priced on a day on which the Dow Jones tumbled by 200 points.

"We sat here all night watching the New York market falling and having to price and allocate the following morning," recalls Rachael Wood of NatWest Market's equity syndicate. "So it was the worst possible timing, but we had a very strong order book so we went ahead in spite of the fall in New York. Inevitably people wanting to stag the issue got their fingers burnt, but serious long term investors did very well out of the deal."

Another notable exception last year was the frequent visitor to the convertible market, BAA, which in August launched a highly successful £200m convertible via UBS and Schroders which provided partial funding for the airport operator's acquisition of Duty Free International (DFI).

With Swiss investors especially keen on the transaction, the deal was increased from its originally planned size of £175m, although it was reportedly four times oversubscribed.

There are a number of obvious reasons why equity supply in the UK is now looking thin on the ground relative to other continental European markets.

Clearly, one of these is that privatisation -- of which the UK acted as Europe's pathfinder in the early to mid 1980s -- has run its course.

A second theme which is spreading like wildfire throughout continental Europe and creating a proliferation of IPO opportunities -- corporate restructuring and the creation of shareholder value -- is also far more advanced in the UK than elsewhere.

A third theme which is now more applicable to continental European primary markets than it is to the UK is in the flotation of smaller companies.

"There has been very little interest recently in smaller companies," says one London-based equity syndicate manager, "and we saw the final nail driven into the smaller company coffin recently when Hoare Govett axed its smaller companies index.

"Perversely, we may see some renewed interest in the sector now precisely because of that, with canny investors thinking that because things can't get any worse for smaller companies now might be the best time to buy. But it's still a difficult area and floating smaller companies is a tough business."

A number of factors seem to have militated against smaller companies' share price performance over the last two to three years. Industrial globalisation, according to analysts, has inevitably led to investors focusing on the largest blue chip companies, while increased cross-border portfolio investment within Europe has had a similar effect.

At a domestic retail level, meanwhile, the enormous emphasis which the unit trust industry has recently put on index tracking funds has also tended to work in favour of larger companies and against the smaller company sector.

The result of all of this is that while continental European markets appear to have a great deal to look forward to at the primary level -- from the likes of Alsthom in France, Deutsche Postbank in Germany, Enel in Italy and Swiss Telecom -- the outlook for the UK is sparse.

Be that as it may, several observers -- above all those from the overseas houses which now dominate the UK's equity capital markets business -- confess to a degree of mystification as to why primary market activity in the UK is so thin on the ground relative to the US, which is also a mature market in which privatisation is conspicuous by its absence.

Their greatest mystification -- which leads in some cases to savage vilification of the system -- centres around the time-honoured pre-emptive rights arrangements which continue to hold sway in the UK equity market.

"The major difference between the UK and other markets is the existence of pre-emptive rights," says one banker. "That is the fundamental difference which determines the frequency of equity issuance in the UK relative to other markets.

"The biggest problem with the rights issue system in the UK is what I would call the 'cartel effect'. The system allows institutions to come in and get shares at a discount by sub-underwriting. But investors should not be doing the sub-underwriting. Banks should."

That, say bankers, almost defeats at least one of the objects of raising new equity capital. "It's a lousy system and one which is impeding both the growth of the capital market in the UK and equity valuations," says one contemptuous banker.

"It's rather like always having the same people over to a dinner party. By having the same friends over time and again, you never challenge yourself to broaden your social horizons. Surely the whole point of raising new equity capital should be to use the opportunity as a way of reaching new shareholders."

Failing to grasp opportunities to diversify their investor base, say US bankers in London, clearly has a detrimental influence on the price at which UK companies raise new equity.

"By definition, UK companies have been underpricing their equity," says one, "and when we pitch companies we try to explain that their main focus should be on diluting the holdings of the largest investors and spreading demand for their shares as far as possible. It is the incremental buyers who will inevitably give you a better price than investors who already own your stock."

Another source of bewilderment to some foreign bankers in London is that apparently archaic systems in the primary equity market seem to have survived almost the entire industry being taken over by overseas giants.

With the equity departments at Kleinwort Benson, SG Warburg, BZW and now NatWest all now having been acquired by foreign banks, it would have been logical to assume that the entrenched UK modus operandi would by now have been replaced with newer techniques which are the order of the day internationally.

"We sit here and we just don't get it," says a representative of one US investment bank in London. "We just don't understand how these things can continue when the UK market is now more or less controlled by foreign banks.

"The only answer I can come up with is that there are pockets of people in corporate broking departments who have become so used to the domestic side of their business that they have been left in the dark ages."

The same banker adds that a unique aspect of the UK system is that the corporate broking departments tend to be entirely separated from the equity capital market divisions.

"So what you have is a very forward looking equity capital market department which is working on everything but the UK on the one hand, and a corporate broking department focusing purely on the UK on the other which seems to be stuck in some kind of time warp."

What is clear, however, is that in the primary equity market at least, international issuance practices are now beginning to win the day in the UK.

"Apart from the very small transactions," says Learoyd at Goldman Sachs, "all the reasonably sized IPOs are now being done on a bookbuilding mechanism, with researched pre-marketing, a formal pre-announced price range and with an international offering either with a dual listing or with a rule 144A tranche."

But even some of the smaller flotations in the UK are also now being executed on an international-style basis. The case of the IPO of the football club, Newcastle United, is, for example, described by one banker as "a most unusual float". He explains: "It was a very strange float to syndicate because for a football club you would expect the vast amount of demand not only to be domestic, but also to be highly regional."

This move towards US-style offerings is happening, say bankers, in spite of the substantial resistance of UK institutions. "UK institutions basically don't like bookbuilding," says one. "They don't like it because it produces competition. They much prefer the fixed price offer for sale where they can get the best price and basically rip off the issuer.

"So when they're presented with bookbuilding proposals they feign a lack of understanding or complain that it gives them too much additional work. But increasingly they are having to accept the concept and they're being forced to do things they don't like."

At NatWest Markets, however, Aylard insists that it is wrong to see the primary market in black and white, with one system somehow better than another, and that the fusion of US and UK houses need not mean an automatic switch to bookbuilding and syndication.

"We will continue to look after our clients to the very best of our ability," he says, "which does not necessarily mean we will impose US models on them. And so far our discussions with BT Alex Brown on this score have been very constructive. They fully recognise that different markets work in different ways and that in some instances the old UK system may be preferable."

He adds: "Clearly, if you are launching a large issue where you want substantial levels of international demand and you want multiple research coverage, it may be worth syndicating the issue. But this need not be the case for medium and smaller deals where you know the bulk of demand is going to come from the UK.

"Our knowledge of the needs of the market allows us to provide the same price accuracy as in a formal bookbuilt offering without the complexity of multiple syndicate members."

Also under very concerted attack is the entire system of structuring rights issues in the UK, and above all the time-honoured mechanism of fixing underwriting fees at 2%, which is currently the subject of a Monopolies and Mergers Commission (MMC) review.

"The enquiry which is now underway revolves around whether or not it is appropriate that a single fee scale should be charged with respect to all transactions irrespective of the quality of the company," says one equity syndicate head in London.

"I think that probably it should, because what underwriters are doing in the final analysis is insuring against market risk. If there's a market meltdown during the rights period, it is going to have the same effect on company A as on company B."

Others clearly disagree, and the last year or so has seen a number of banks -- most notably Schroders, Dresdner Kleinwort Benson and Morgan Stanley -- openly challenging what they see as an anachronistic system by putting fees out to tender.

Many observers believe this is being driven in part by a fundamental change in the ownership structure of the UK equity market. "We are now at the stage where arguably UK ownership of the domestic market has peaked," says one.

"Historically, UK institutions have always been the dominant lobby, but they are now switching to bonds and to international stockmarkets. As retail demand is not sufficient to absorb the reduction in institutional demand for equities, it suggests that the gap is being filled by foreign investors."

The other distinctly British feature of the primary equity market which has apparently been consigned to the history books is the old offer for sale mechanism under the terms of which new IPOs were required to offer shares directly to retail investors.

The template for offering shares to the public now, says Learoyd at Goldman Sachs was more or less established in 1995 with the flotation of BSkyB.

"The way we approached the BSkyB sale was to let the public know that they could apply for shares not on the basis of a fixed price but based purely on how much money they wanted to invest," he says. "Interestingly enough, the same model has been used in virtually every major corporate IPO in the UK since then, so it provides another demonstration of how practices have changed when competition has allowed them to." EW

  • 01 Mar 1998

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1 Citi 20,521.83 80 6.93%
2 Barclays 20,382.90 37 6.89%
3 JPMorgan 18,760.94 72 6.34%
4 Goldman Sachs 17,444.96 41 5.89%
5 BNP Paribas 16,525.22 36 5.58%

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5 SG Corporate & Investment Banking 36,258.27 187 4.72%

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3 UBS 970.80 3 14.50%
4 BNP Paribas 522.35 4 7.80%
5 SG Corporate & Investment Banking 444.17 3 6.64%