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Happy flotation year beckons in London

posted Jan 3, 2010, 8:58 PM by Scott Smith
Commentary: High hopes for initial public offerings after 15-year low in 2009

LONDON (MarketWatch) -- Springtime seems to have come early to the London stock market. Nothing to do with the weather. Ever since the Copenhagen summit on global warming, snow has been on the ground in unusually deep patches across the UK. In some cases stockbrokers will be struggling back to work through snowdrifts Monday clad in Wellington boots rather than brogues.

Neither is the City buoyancy simply a reflection of the end-year rally around the world. Hopes are high of a substantial revival in City flotations this year -- and the fees that flow in their wake -- after a decline to a 15-year-low in 2009. The last couple of years have seen substantial collective beating of City breasts as the London market reacts to accusations that an over-light touch in U.K. financial regulation may have contributed to the financial crisis.

International Forecast for 2010

Mike Lenhoff, chief strategist of Brewin Dolphin in London, runs down what to expect in China, Europe and the U.S. as 2010 gets underway.

At one point, this caused significant tension between New York and London. The two sides of the pond swapped invective over whether an overly lax City regime that attracted large numbers of foreign issuers in London was promoting loose practices around the globe. The junior investment market for smaller companies, Aim, was singled out for particular criticism. The Americans were up in arms not just about a surge in issues in London Russian and Chinese companies but also, a lot closer to home, about the roughly 30 US companies that listed on Aim in 2006 and the early part of 2007.

The total number of initial public offerings on the main London market in the past year fell to nine, raising less than 1 billion pounds, the lowest for more than 15 years. However, hopes are high that 2010 will be a great deal better. In December, fund manager Gartmore Group Ltd. (UK:GRT 214.50, +1.50, +0.70%)  became the first large IPO of the year.

The 2010 lineup

Companies lined up for IPOs in 2010 are all from sectors that have fared relatively well over the past 12 months - including New Look in retailing, Ocado in on-line sales, Merlin Entertainments in theme parks and fitness chain Virgin Active.

Last year was not all bad, though, for London.

In view of a surge in secondary issues, the total raised in IPOs and secondary offerings on all sections of the LSE rose to a record 82.5 billion pounds, up16 % on 2008.

One highlight from an "old economy" company was the $500 million offering in July by Tata Steel Ltd. of India (TATIFM 13.27, +0.12, +0.91%) .

By far the biggest component of last year's offerings were rights issues from a broad range of companies on the main market, including Royal Bank of Scotland (RBS 9.39, 0.00, 0.00%) , HSBC Holdings Plc (HBC 57.09, 0.00, 0.00%)  and Lloyds Banking Group (UK:LLOY 50.69, 0.00, 0.00%) , which raised 13.5 billion pounds in November, the world's largest-ever rights issue. Secondary issues are, however, a good deal less lucrative for banks and a slew of legal, public relations and accounting advisers swimming in their wake -- which is why a lot of people in London are banking on a Happy Flotation Year in 2010