Companies turning to public capital markets to raise much-needed cash

The Covid-19 global pandemic has triggered severe disruption to businesses, particularly in certain hard-hit sectors such as travel and hospitality almost overnight.

Marcus Stuttard is Head of UK Primary Markets and AIM, London Stock Exchange

Increasing economic data showing a contraction of Gross Domestic Product (GDP) and manufacturing output as well as a spike in unemployment figures has seen companies of all sizes consider their future capital requirements. As a result, listed companies are turning to the public capital markets to strengthen their balance sheets for challenging times ahead.

The most high-profile point of capital raising in public markets is often associated with an initial public offering (IPO) when a company lists on an exchange for the first time. However, the ability of listed firms to issue further equity is an equally important feature of public markets. For example, it accounts for approximately 60 per cent of money raised on AIM over the past 25 years.

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London Stock Exchange has seen a wave of further equity raises in recent weeks with companies listed across its markets, such as Hays, Auto Trader, WH Smith, The Restaurant Group and ASOS all raising new funds. Companies on AIM raised over £500m in a few short weeks between March and April in this way. And a total of £1bn was raised in the first two weeks of April alone, despite significant market volatility over the period.

The capital being raised is vital, in some cases to enable companies to remain robust despite steep declines in revenue. However, in other cases firms are raising equity to fund growth.

For example, AIM-quoted Omega Diagnostics is working towards manufacturing 46,000 Covid-19 laboratory tests a day with partner Mologic, while also working with a private Oxford consortium on a home test kit, which it could produce 100,000 of per week if successful. In addition, AIM-quoted Novacyt announced an agreement to supply the NHS with 288,00 antigen tests a week in addition to other collaborations.

Despite ongoing uncertainty, investors remain focussed on opportunities within UK and global equity markets. Recent volatility and the recognition by investors of under-priced sectors or individual stocks has helped attract a notable spike in account openings across UK investment platforms, as investors explore buying opportunities.

In order to promote retail investor participation in the equity markets, London Stock Exchange is working with PrimaryBid, to enable real-time access capital raising transactions being undertaken by companies on our markets. The platform enables individual investors to participate in transactions on the same terms as institutional investors.

London Stock Exchange AIM quoted housebuilder, Inland Homes, is one company to have recently utilised PrimaryBid to enable individual investors to participate in further equity issuance. The company offered shares to existing shareholders at a 11.2 per cent discount to the prevailing share price.

Our collaboration with PrimaryBid is part of our ongoing commitment to broaden access to capital markets for retail investors and to making it easier for companies to raise capital from the widest range of investors.

In recognising the speed at which some companies need to access fresh capital, the FCA temporarily amended its rules to speed up the fundraising process for issuers and investors at the start of April.

By doing so, the regulator has enabled capital markets to continue to perform efficiently during this ongoing crisis.

With social distancing and lockdown measures set to exist in various forms for the coming months, equity and debt capital markets will continue to play a vital role by providing London listed companies at home and abroad with capital to weather the Covid-19 storm.