ALEX BRUMMER: If Jeremy Corbyn drives out big UK firms, that would ruin City earnings and destroy rich seam of taxes which pay for public services Labour is vowing to improve
The notion that Britain’s FTSE 100 companies are sitting on their hands waiting for Jeremy Corbyn to nationalise or grab 10 per cent of their shares is a fantasy.
Britain’s corporate brokers, the vital link between listed companies and the stock markets on which they are quoted, are working overtime to prevent Labour wrecking shareholder value and global confidence.
Many have quietly set up risk committees to look at the Labour proposals on the grounds that not to do so would be a breach of their fiduciary duties under company law.
A gathering storm?: Britain’s corporate brokers are working overtime to prevent Labour wrecking shareholder value and global confidence
Several have drawn up contingency plans to move their share quotations off the London Stock Exchange to other markets.
Most of these plans are being guided by where most of the income is booked and which markets would give them the maximum flexibility to continue with mergers and acquisitions, new share issues and other corporate actions with a minimum of regulatory friction.
A number of UK companies – including HSBC, Standard Chartered, Unilever and Smith & Nephew – have looked at moving overseas in the past but have been prevented from doing so because of shareholder opposition. This time around, the firms are deadly serious. In 2012 the advertising giant WPP was among those to move to Dublin to avoid the potential burden of double taxation of overseas earnings.
The decision was reversed when the Treasury backtracked. Ireland and the Dublin stock exchange might seem like an obvious escape route, with the attraction of a 12.5 per cent corporate tax rate.
But it is thought the New York Stock Exchange, or one of the other North American exchanges, would be more likely. They offer healthy liquidity, are used to dollar earnings and many of the UK global players, including big pharma, have large marketing and headquarter-functions established in the US. Banks such as HSBC and Standard Chartered once might have regarded Hong Kong as an easy escape route. But they would be wary amid the present disorder, and could opt for Singapore or even Canada as safer havens. Fascinating that Aviva boss Maurice Tulloch has just called off the sale of its Singapore-based operations which could have raised substantial sums. Is Aviva keeping its options open?
Brokers report that Corbyn proposals – especially the share grab for companies with employees of more than 250 staff – have already had a devastating effect on initial public offerings, with London tumbling down the global league.
If the big UK firms decide to swim for it, they will take chunks of the City with them, including investment bankers, the big City law firms and consultants.
That would ruin City earnings and destroy a rich seam of taxes which pay for the very public services which Labour is vowing to improve through transformational funds.
London may have bent over backwards to get a share of the Saudi Aramco float, but that is looking ever more difficult.
Corbyn’s shadow may yet be lifted on December 12 but that is not the only factor which has held up an international offering.
Germany is playing hardball with Saudi Arabia over the assassination of journalist Jamal Khashoggi in Turkey last year, and the embargo on sales of war material, including British ordnance and an order for Typhoon jets, is being held up until March 31, 2020 at the earliest. The UK was never likely to be favoured with this cloud overhead.
As matters stand, the proposed IPO is not the great triumph ‘reforming’ Prince Mohammed Bin Salman has been yearning for. An initial target price of $2 trillion was not achievable and overseas advisers argued that something nearer $1.3 trillion was about right. The difference was split at $1.7 trillion and the offer, which will raise some $25 billion in new funds, largely will be confined to Saudi investors. Many of Saudi’s big hitters together with millions of smaller investors have been dragooned into subscribing.
Politics and finance can be a toxic mix.
Something to cheer Corbyn and acolytes. The prospect of nationalisation has caused corporate bonds to rally. Traders figure that if Labour pursues a Transport for London-style model, whereby utilities run themselves but fund through corporate bond markets, then it should be good for valuations. The firms will be closer to government and able to enjoy the stronger ratings that go with sovereign debt.
That assumes the UK isn’t bankrupted first.