By Alun John and Pablo Mayo Cerqueiro
LONDON (Reuters) - London risks losing its appeal for stock market listings, some investors and financial executives said, with sluggish trading and low valuations driving more companies to float elsewhere.
Arm, owned by Japan's SoftBank, on Thursday said a U.S.-only initial public offering (IPO) was the "best path forward" for both the chip technology firm and its stakeholders.
That dashed government hopes that Arm, seen as a British tech success story, would return to the London market, where it was listed before being taken over in 2016.
"There is zero surprise that Arm has chosen New York, and many other businesses, particularly where the majority of their operations are in the U.S., will follow," said Iain McDonald, founder of investment advisory firm Belerion Capital.
Arm's announcement came a day after Dublin-based construction materials company CRH (NYSE:CRH) recommended moving its primary listing from London to the United States.
"It's a move that seems to make sense for a company that does so much business Stateside, but it hints at further dissatisfaction with London's ability to cut it as a global financial superpower," said Danni Hewson, head of financial analysis at AJ Bell.
In another blow to London, Flutter Entertainment, the world's largest online betting firm, said last month it would consult shareholders on an additional U.S. listing.
McDonald said that if companies like Arm do not list in the U.S. they would "simply be acquired by better capitalised, higher-rated U.S. competitors", pointing to reduced market liquidity and support for growth companies in Britain.
Britain's troubles in attracting IPOs stem partly, investment bankers say, from London-listed companies being valued lower than those in the United States.
S&P 500 index companies trade at 17 times 12-month forward earnings, compared with around 11 for the FTSE All-Share index, a gap that has grown in the past decade.
London accounted for just 1.1% of the total amount raised by companies in listings in 2022 and ranked 13th in a table topped by China and the United States, Dealogic data shows.
So far in 2023 it is 21st, with China again in top spot.
But British companies that floated in New York have not necessarily had the smooth ride they expected, data compiled by the London Stock Exchange (LSE) suggests.
By the LSE's own count, the 22 British businesses that have floated in the U.S. over the last decade have seen their shares drop by 38.6% on average.
(Graphic: Cheaper by the pound - https://www.reuters.com/graphics/BRITAIN-STOCKS/dwpkdzqdzvm/chart.png)
'AMBITIOUS REFORMS'
Britain remains a leading global financial centre, the headquarters of many major global institutions, the world's largest foreign exchange trading venue and home to one of Europe's largest stock exchanges by market value.
But Arm's decision should be a wake-up call for officials to make Britain a more attractive destination, LSE Chief Executive Julia Hoggett said.
"(It) demonstrates the need for the UK to make rapid progress in its regulatory and market reform agenda, including addressing the amount of risk capital available to drive growth," Hoggett said on Friday.
Britain has launched a series of reforms designed to streamline listing rules and make it easier for investors to allocate more cash to stocks, rather than bonds.
"The UK is taking forward ambitious reforms to the rules governing its capital markets, building on our continued success as Europe's leading hub for investment, and the second largest globally," a government spokesperson said in a statement.
Among the measures already in place is a reduction of the minimum free-float required for companies to list, and further reforms are in the works, including a review of the LSE's Premium and Standard listing segments.
"The U.S. is a big competitor, but it's important for companies to look at the data," said one person with knowledge of British efforts to win more listings.