By Kate Burgess, Investment Correspondent
Companies face higher barriers for entry to the UK?s flagship stock market indices, following an outcry from investors concerned about the wave of overseas companies seeking to list shares on the London market while keeping control out of public hands.
FTSE, a joint venture between the Financial Times and the London Stock Exchange, is consulting on new thresholds for entry to the FTSE 100 and FTSE All-Share indices. It is asking investors who use the indices whether the new companies should be required to put at least 25 per cent of their shares in public hands.
This follows complaints from institutional investors that a number of new entrants to the London market have won or are seeking to win waivers that allow them to enter the indices despite having a free float of less than 25 per cent.
UK incorporated companies, which are granted a premium listing by the UK Listing Authority, have an automatic passport to the FTSE indices. The UKLA can permit very big companies to have premium listings, and hence enter the indices, even though more than 75 per cent of shares remain out of public hands.
If adopted, the FTSE?s new rule would be a higher hurdle than that imposed by the UKLA. Until recently, waivers on free floats – the amount of shares in public hands – have been rare. However, there are now four companies in the FTSE 100 with free floats of less than 25 per cent: Fresnillo, Eurasian Natural Resources Corporation, Essar and Glencore.
Investors and index compilers worry that many more are in the pipeline.
Mark Makepeace, chief executive of FTSE, said although the UKLA?s priority was to ensure that shares can be easily traded, ?the issue is about governance?.
He added: ?UK pension funds and institutional investors are concerned that sizeable companies coming to market with limited free floats poses a governance problem.?
Shareholder groups say the protection of minority shareholders in companies that have fewer than 25 per cent of shares in public hands is weaker. Investors are also concerned that index tracking funds that passively mirror indices are forced into buying shares in these groups.
Dominic Rossi, global chief investment officer at Fidelity Worldwide Investment, welcomed the move by FTSE but said it did not let the UKLA off the hook. ?I am concerned about the extent that the UKLA concentrates on liquidity and less on the reputation of the London market, given the potential long-term risks to minority shareholders.?
FTSE is consulting on another option to create a new index based on companies meeting standards on corporate governance.
? The Financial Times Limited 2011