Capital market trends and expectations for 2021

By Carolyn Gelling, The International Stock Exchange Group

As sponsor of the pro-manchester Virtual Corporate Finance Lunch 2021 held on 11 February, Carolyn Gelling from The International Stock Exchange Group provided the welcome address to delegates and here is what she had to say about capital markets activity across the North West and beyond in 2021.

As we remain in the grips of the COVID-19 pandemic, ‘twenty-twenty-one’ looks likely to be another year that will remain etched on our memories.  The world continues to fight for the abolition of the pandemic and as individual businesses, we each work through the effects of its ongoing and longer-term ramifications.  It has certainly been a profound start to a new decade thus far, and after the events of 2020, what have we noticed in terms of new stock exchange listing trends and what do we anticipate for this current calendar year?

Access to cashflow and capital

The impact of COVID-19 has created nothing short of a massive challenge for businesses across the North West.  For many, the challenge has been too great and led to businesses being forced to permanently close their doors. Whilst for others, government support schemes have provided some welcome assistance that boosted cashflow requirements and provided temporary relief.

That support continues for some, in a hope that business may resume in the medium term.  Whereas other businesses have acted rapidly to adapt their offering and sought new pathways for revenue generation – in some cases, providing much needed services to protect and support local communities.

For those seeking access to new investors through the use of capital markets, there has been a flurry of secondary equity issuance and some initial equity offerings through the large stock exchanges over the past twelve months.  Albeit that activity in the private markets continues to remains vibrant and dominant to some degree and has potential for another busy year ahead, with cash balances waiting to be deployed.

Access to capital for many UK SMEs is likely to remain a challenge and one which could create real stagnation to an already vulnerable UK economy.  We will continue to advocate the consideration of early listing as a means to access capital markets, and to support both scaling businesses in striving towards their aspirations and also for purposes of gradual capital exit for business founders.

2020 Trends

Business continuity plans were certainly tested across our industry of professional and financial services in 2020.  For TISE, mid-March of 2020 saw a swift adaptation to working from home across our entire organisation and a necessity to keep the Exchange fully operational.  Our market surveillance team worked tirelessly to maintain market integrity, whilst adapting to the new challenges that were presented to our issuers, not least around the physical execution and submission of documents during lockdown, as well as delays around both the production of financial statements and the completion of issuer audits.

New listing applications did not abate in their volume during 2020 and by the year-end, we had listed a further 831 securities to bring our total number of listed securities to 3,162. This is the second highest annual total of new listings since the inception of the Exchange, eclipsed only by a bumper 2018, and represents a 27% increase on 2019. But what were the reasons that drove those numbers and what trends do we expect to see in 2021?

The early part of 2020 saw new listings related to private equity and real estate transactions, many of which related to deals struck prior to the second quarter of 2020 and were in the process of completion through the initial part of the first ‘lockdown’.  Hence, there was something of a time delay.

Yet despite the backdrop, new listing applications continued to flow in not dissimilar volume and become increasingly related to corporate refinancing, whether opportunistic or essential, as well as greater proportions of securitisations and high yield bonds as the year progressed.

The latter included securities issued by companies such as Altice and eircom, luxury Aston Martin, LEGOLAND owners Merlin Entertainments, transport operator Stena and Netflix.  TISE listings were also part of the structuring for three significant transactions in the third quarter of the year: the largest being the Liberty Global and Telefónica financing vehicle for the merger of Virgin Media and O2; the UK’s largest pub chain, Stonegate Pubs; and debut issuer First Quantum Minerals.

Listed debt securities on TISE also included a growing number of securitisations, with prominent deals including major UK banks Barclays, HSBC, Lloyds and Natwest, as well as other global financial institutions.

2021

Whilst new listings for January will be largely relating to deals and transactions struck in the latter part of 2020, we note continued refinancing activity.  This is not surprising and a trend that is expected to continue throughout the year and beyond, given the wider backdrop.

Private equity investment shows a degree of uptick, as anticipated and suggests an increase in the commitment of cash to market and a possible turn of attention from last year’s immediate focus upon supporting existing portfolio companies. With continued low interest rates and availability of cash to deploy, we anticipate that there will be fairly active buy-side activity as the year progresses, undoubtedly in the form of both opportunistic or ‘rescue’ deals, as well as longer term strategic acquisitions and resulting in new debt listings.

As we continue to witness a trend of corporate refinancing, national organisations have also turned their attention to refinancing as the impact of COVID-19 is expected to cause massive economic ramifications for many years to come.  In certain cases, supranational debt has been issued through public markets as a means for accessing additional funds, at reasonable cost and whilst often provided a means for creating greater public engagement and ownership.  The UK also intends to issue its first ‘green gilts’ in 2021.  A move that is timely and follows the governments of Germany and Sweden having already issued sovereign green bonds.

Real Estate

In real estate, TISE has also continued to grow its market share in UK Real Estate Investment Trusts (REITs). Eight UK REITs were newly admitted to the Exchange during 2020, with investors from various international jurisdictions comprising sovereign wealth funds, pension funds, major global financial institutions and specialist property investment groups. This took the total number of UK REITs listed on the Exchange to 29 at the end of December 2020, which represents more than 30% of the UK REIT market.

With continued interest in REITs as a vehicle to access property exposure, in a potentially more liquid and efficient form, we expect further interest throughout the year and have already seen new listings with underlying property assets thus reflecting specific areas of interest and activity in the property market.

TISE will continue to play its role in our local communities and the wider capital markets community through 2021, by supporting enterprise and endeavours for businesses to build back stronger after the ramifications of COVID-19.

Carolyn Gelling is Head of Isle of Man Office at The International Stock Exchange Group.

Address: Level 2, St Mary’s Court, Hill Street, Douglas, Isle of Man

Phone: +44 (0) 1624 675907

Twitter: @tisegroup

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