Initial Public Offers:A guide to the UK listing regime

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Clifford Chance has a specialist IPO focus group comprising of lawyers drawn from both our corporate and capital markets practiceswho are experienced in advising companies, sponsors, shareholders and directors on London listings, including on the US aspects ofthese transactions.

For advice on listing a company in the UK, please call your usual Clifford Chance contact or any of the following members of our IPO group:

Mark Carroll (020) 7006 1705 John Connolly* (020) 7006 2096 Adrian Cartwright (020) 7006 2774 Robert Trefny* (020) 7006 2180 Lee Coney (020) 7006 1281 Chris Walton* (020) 7006 4477 Steven Fox (020) 7006 4827 George T. Hacket** (49) 697199 3103Iain Hunter (020) 7006 1892David Lewis (020) 7006 1903Patrick Sarch (020) 7006 1322Simon Sinclair (020) 7006 2977Simon Thomas (020) 7006 2926

To email, please use firstname.lastname@cliffordchance.com.

* US Qualified Partners** Austrian and US Qualified Partner

The primary intention of this guide is to provide a valuable point of reference for the directors,executives and shareholders of a company seeking admission of its shares to the Official List and totrading on the London Stock Exchange’s Main Market. The guide identifies legal and practical issuesthat commonly arise on IPOs, including where, as part of the offer, it is intended to access the UScapital markets.

Section 1 contains a discussion of some of the advantages and possible disadvantages of a listing.Section 2 provides an introduction to the concept of listing and explains the role of the FCA and theExchange in the listing process.

Sections 3-11 are most relevant to UK and overseas companies contemplating a Premium listing ofshares. Section 3 contains practical guidance on the procedure for obtaining a Premium listing. Weaddress the basic eligibility conditions which a company must satisfy before it is able to apply for aPremium listing of its shares (section 4), the methods by which a company may choose to come to themarket (section 5) and the offer documentation itself (section 6). This guide also considers theunderwriting process and the issues surrounding the publicity and marketing which will accompanyany IPO (sections 7 and 8 respectively). The potential liabilities which may arise on listing are discussedin section 9.

The continuing obligations to which a company with a Premium listing will be subject are discussed insection 10 of the guide. This section also considers the disclosure of dealings in shares of a companyby directors and other persons and the statutory market abuse regime.

4 Initial Public Offers: A guide to the UK listing regime, Clifford Chance LLP

Introduction

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The guide is relevant to both UK and non-UK companies seeking admission of their shares to theOfficial List. The particular issues which arise for non-UK companies seeking a listing of their shares inLondon are discussed in section 11. Standard listings are also discussed in this section.

There are specific provisions which apply to specialist companies seeking a Premium listing of theirshares. Both the listing and continuing obligations requirements which apply to investment entities areconsidered in section 12 and those which apply to other types of specialist issuers, such as miningcompanies, are set out in section 13.

Whilst the key focus of this guide is on a company seeking a Premium listing of its shares on theOfficial List, there are also separate sections on the admission of GDRs to the Official List (section 14)and the admission of securities to AIM, the Exchange’s junior market (section 15).

In Appendix 1 of this guide you will find a “quick reference guide” which compares and contrasts thekey eligibility and continuing obligations requirements for Premium, Standard, GDR and AIM issuers.

Definitions of words and expressions used in this guide are contained in the Glossary at the back of this guide.

This guide does not purport to be comprehensive or to render legal advice. The position is stated as at 23 May 2014.

Copyright Clifford Chance LLP: 2014All rights reserved

Initial Public Offers: A guide to the UK listing regime, Clifford Chance LLP

Con

tent

s Page

1. Why list? 8

2. The listing process 12

3. Preparing for listing 18

4. Basic conditions for listing and trading 28

5. Methods of listing 36

6. The Prospectus 44

7. Underwriting 56

8. Marketing and publicity issues 62

9. Possible liabilities arising on a listing 68

10. Continuing obligations for listed companies 74

11. Standard listings and listings of equity shares by non-UK companies 86

12. Listing an Investment Entity 90

13. Specialist Issuers 96

14. Listing Global Depositary Receipts 102

15. Admission to AIM 108

Appendix 1 Quick reference guide to key eligibility requirements and continuing obligations requirements for Premium, Standard, GDR and AIM issuers 118

Glossary 122

Index 128

Why list?

1.1 Advantages1.2 Disadvantages

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A company contemplating an IPO needs to consider theadvantages of obtaining a UK listing and compare them to boththe possible disadvantages of maintaining a listing and the benefitsof any alternative transactions that may be available to it. Thissection identifies some of the key advantages and disadvantages.

1.1 Advantages

1.1.1 Access to additional equity and debt capitalPrivate companies are restricted in the offers of securities they canmake to the public. Raising equity funds from the public by way ofan IPO can be used to expand operations, increase workingcapital or reduce borrowings. In addition, the establishment of amarket for the company’s securities, and the broader shareholderbase following a public issue, will enhance the company’sprospects of raising additional capital in the future.

1.1.2 Corporate image enhancedThe UK is internationally recognised for its high standards ofregulation and supervision. Providers of finance will generally lookmore favourably on providing capital or lending to UK listedcompanies due to the extent of the reporting requirements and thecontrols placed on listed companies by the FCA and the Exchange.

1.1.3 Increased liquidity of capital investmentListing facilitates the realisation of investment and enablesshareholders to reduce their level of investment in the company atthe time of, and following, listing. The liquidity of the secondarymarket is also important in order to enable the company to raiseadditional capital in the future on favourable terms.

1.1.4 Growth not limited by cash resourcesOnce listed, a company’s securities will be more attractive to otherparties as consideration for mergers and acquisitions. Acompany’s capacity to grow and diversify is likely to increase, as itwill be less constrained by its cash resources.

1.1.5 Attraction and retention of key personnelA listed company may be in a better position to attract and retainkey personnel by being able to offer marketable shares in thecompany, or options over such shares, as part ofremuneration packages.

1.1.6 Improved corporate governance UK listed companies are subject to stringent corporategovernance requirements laid down in the UK CorporateGovernance Code. Improved corporate governance practicesgenerally mean better decision making which is valued by theinvestor community. Listed companies must also be mindful of theviews of the Investor Protection Committees (“IPCs”). This is anumbrella term for organisations such as the Association of BritishInsurers and the National Association of Pension Funds. Theseorganisations represent the interests of their members who arelarge institutional shareholders. Whilst the various guidelinesissued by the IPCs do not have the force of law, listed companiesgenerally tend to follow them rather than risk being criticised fornot following best practice.

1.1.7 Inclusion in FTSE UK indicesA company must have a Premium listing of its shares to be eligiblefor inclusion in the FTSE UK series of indices. Additional eligibilityrequirements are contained in the “Ground Rules for theManagement of the FTSE UK Index Series” which, in brief, requirethe company’s shares to have a sterling denominated price on theStock Exchange Electronic Trading Service (SETS), the companyto be deemed to have UK nationality by the FTSE NationalityCommittee and certain liquidity requirements to be met.

To qualify for inclusion in the FTSE UK Index Series, a UKincorporated company is required to have a minimum free floatof 25 per cent. In contrast, a company which is notincorporated in the UK, is required to have a free float greater

Initial Public Offers: A guide to the UK listing regime, Clifford Chance LLP

1. Why list?

than 50 per cent. and to publicly acknowledge adherence to theprinciples of the UK Corporate Governance Code, pre-emptionrights and the UK Takeover Code, as far as practicable. TheFTSE Nationality Committee will then take into account certainorganisational and other factors in determining a company’squalification for index inclusion.

If a company is eligible for inclusion, its market capitalisation willdetermine which index it will feature in. Inclusion in these high profileindices raises a company’s own profile and attracts investmentsfrom tracker and benchmark funds tied to the FTSE indices.

1.1.8 Visibility and awarenessThe financial press tend to focus more on the products,positioning and transactions of listed companies. In addition, alisted company’s annual report, half yearly results, interimmanagement statements and press releases are likely to generategreater interest.

Awareness of the listed company is also raised within thesecurities industry itself, with market analysts, industry researchanalysts and the company’s own corporate broker payingparticular attention to the company’s strategy and performance.

1.2 Disadvantages

1.2.1 Dilution of control of existing ownersAn IPO may result in the dilution and possible loss of control forthe existing owners. Depending on the extent of the dilution, therisk of takeover may be increased.

1.2.2 Additional responsibilities of directorsDirectors of a company publishing a Prospectus as part of an IPOare personally liable for the completeness and accuracy of

information contained in the Prospectus. They also assumeadditional ongoing responsibilities as directors of a listed publiccompany. Furthermore, to the extent that the IPO is intended toaccess US or other international capital markets, the companyand its directors will be exposed to potential liability under the lawsof those jurisdictions.

1.2.3 Greater disclosure of informationAn important consequence of listing is the greater requirement fordisclosure of information and its wider distribution. This includesboth inside information and general commercial information.

1.2.4 CostsThe initial costs of conversion to a public listed company (whichfrequently entails a corporate reorganisation), underwriting fees andbrokerage, corporate advisory, accounting and legal fees, listingfees and share registry costs can be substantial. There will also beincreased continuing expenses as a result of the listing andenhanced disclosure and corporate governance requirements.

1.2.5 Management timePreparing a company for an IPO is likely to take, as a rule ofthumb, four months from the first meeting with advisers. The workinvolved in preparing a company to come to market is very timeconsuming and key executives will find much of their time takenup with the IPO process. These individuals will need to try andbalance the management of the IPO process whilst continuing torun the company.

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Section 1: Why list?

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Section 1: Why list?

Initial Public Offers: A guide to the UK listing regime, Clifford Chance LLP

135Initial Public Offers: A guide to the UK listing regime, Clifford Chance LLP

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