IPO laggards’ race to the bottom misses the target
10/11/2023 08:59
(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
By Lisa Jucca
MILAN, Nov 10 (Reuters Breakingviews) - Italy is
scrambling to make its stock market more attractive. Prime
Minister Giorgia Meloni is siding with UK peer Rishi Sunak in
watering down her country’s listing rules in a bid to stop firms
floating overseas. Like Sunak, she may find that bigger factors
keep the exodus going.
Meloni is responding to a worrying trend. Over the past few
years, some prominent companies have moved their listing venue
abroad. These include Exor EXOR.AS , the investment vehicle of
the Agnelli family, which moved to Amsterdam. Fashion brand
Ermenegildo Zegna ZGN.N , meanwhile, picked New York, hoping
for a higher valuation across the Atlantic. On Tuesday, $14
billion truck and tractor maker CNH Industrial CNHI.MI said it
would ditch its listing in Milan, where shares now trade at an
average 50% discount to global stocks, and only keep trading in
the more liquid U.S. market.
That exodus, and a shortage of fresh IPOs, means Milan is in
danger of becoming a backwater. At a peak of around 800 billion
euros in 2021, the total market capitalisation of the Milan
stock exchange was just 0.5 times Italy’s GDP, the lowest ratio
among major European listing venues and compared with 1.5 times
for Paris and 1.7 times for Amsterdam, Italian Economy Ministry
data shows.
To improve Milan’s allure, Meloni’s government is planning
to allow company founders to multiply their voting rights to up
to 10 times in the run-up to actually listing. Current Italian
rules ban listed firms from issuing multiple-vote shares, except
in the form of loyalty stocks that confer double voting rights
to investors that have been holding them for at least 24 months.
Companies rushing to list in the Netherlands are no doubt
attracted by its lax approach to companies with dual voting
share classes. Adopting similar rules may tempt some of the many
family-owned firms that form the backbone of the Italian economy
to consider a market debut. Italy is not the first country to go
down this route: Britain proposed in May to award shares with
unlimited voting rights to company directors for up to 10 years.
Yet a stock market’s attractiveness rests on multiple
factors. Market participants complain that red tape and fear of
legal wrangling slow down listings in Italy. Companies will
ultimately float where there is most liquidity, favouring
bourses such as New York. And Italy, like Brexit-ravaged
Britain, faces bigger structural problems. Doubts over the
sustainability of Rome’s high public debt push up listed
companies’ cost of capital, depressing their valuations and
making the stock market less appealing.
Ideally, Europe’s many national bourses would combine. That
would create a vast, more liquid market to rival New York, and
one less influenced by any one country’s domestic worries. Until
then, politicians’ tinkering with governance is likely to
deliver modest returns.
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CONTEXT NEWS
Farm and construction equipment maker CNH Industrial, worth
$14 billion, said on Nov. 7 that it planned to delist from Milan
and retain a single listing in New York.
An Italian parliament committee approved on Oct. 10 a
measure to allow listed companies to issue shares giving key
investors up to 10 times voting rights each, as part of efforts
to stem relocations of corporate headquarters to the Netherlands
or even the United States.
Italy is seeking ways to boost the Milan bourse’s allure and
keep firms domiciled in their homeland, as a growing number of
companies have moved their listing or domicile to Amsterdam to
keep their grip on their family holdings.
The UK Financial Conduct Authority published on May 2 a
series of proposals designed to encourage companies to list
in the UK. The proposed sweeping reform of listing rules lacks
consensus on how aggressive the new regime should be in
persuading firms to list in London rather than New York, Reuters
reported on Sept. 25 quoting an executive from the FCA.
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Graphics: Italy’s stock exchange has struggled to attract IPOs
https://tmsnrt.rs/3KwI2lH
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(Editing by Neil Unmack and Oliver Taslic)
((For previous columns by the author, Reuters customers can
click on JUCCA/
lisa.jucca@thomsonreuters.com ; Reuters Messaging:
lisa.jucca.thomsonreuters.com@reuters.net))