mining major decided against shifting to nyse this week
Despite what recent headlines might have suggested, not every London-listed firm wants to jump across the pond.
That’s at least the message that has been sent after mining giant Glencore announced that it would not shift its listing from London to New York, a move that has often been called for by its shareholders.
The company said that the move would not present value for its shareholders. Perhaps that says more about the prospects of being listed in the US rather than the glowing positives of being listed in the UK instead.
At the core of the issue seems to be the matter of valuation. For companies who have already flown across the pond or plan to shortly, including the likes of Flutter Entertainment, CRH and Arm Holdings, seeking a higher valuation for the company was among the reasons cited, as was a lower cost of capital.
For Glencore, after an extensive review of the alternatives open to it, the company decided that London was the best option.
‘London is where we are happy,’ said chief executive Gary Nagle in a call with journalists earlier this week. ‘We don’t believe there is a value-accretive proposition to move exchanges right now.’
However, another key problem was that it may have reduced Glencore’s visibility to index funds: Nagle said that uncertainty over whether the miner would be included in the S&P 500 was a ‘big factor’ in the decision, as were the ‘significant’ costs associated with shifting listing.
This comes as the company reported a deepening net loss of $655 mn in the first half of the year, due to lower production and commodity prices, as lower prices for thermal coal eat into its bottom line. Glencore is currently pulling off a huge cost-cutting program, including slashing hundreds of jobs from its global workforce.
The pressure on UK-listed firms will continue, even after this news. Just last month, shareholders in the payments firm Wise voted to shift the firm’s primary listing from London to New York, despite a potential rebellion by one of its co-founders, Taavet Hinrikus.
Two decades ago, UK-listed equities accounted for 11 percent of the MSCI World Index, which is composed of listed equities from around the world. Now they represent just 4 percent.
That flow looks certain to accelerate. Factors including high interest rates, dwindling pension fund assets, a business culture that does not foster tech start-ups or other innovations, increasing trade isolation for UK companies following Brexit and a lack of committed domestic investors have all contributed to a tougher investing landscape.
Meanwhile, earnings for US-listed firms have been consistently growing, at a three-year annualised return of 14 percent, while revenues have grown at 9.1 percent.
Whether that’s because of inflated valuations, a less stringent regulatory environment or a more cut-throat pool of investors, the pressure is on the LSE and the UK government to stem the tide.
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