Would Wales benefit from its own stock exchange? With two projects already under way to turn the fantasy into a reality, Douglas Friedli weighs up the prospects for establishing a cyfnewidfa in Cardiff.
It’s 2019, and the location is Cardiff Bay. A man and woman, smartly dressed, step off the high speed train from Merthyr Tydfil and stride towards the Welsh Stock Exchange. They are here to float their company, a move made possible by a growing army of local advisers and investors that fuel the booming market.
It may sound like a fantasy, but two separate plans have been drawn up to establish a Welsh stock market – or cyfnewidfa – in the past six months. As business fantasies go, it is pretty popular.
The first was a proposal from Plus Markets, the young rival to the London Stock Exchange, to set up an offshoot or virtual exchange in Wales.
The second is a study by Professor Robert Huggins of the University of Wales Institute, Cardiff (UWIC), into demand for regional stock markets. While the Plus Wales scheme is on hold pending a market upturn, Huggins’s project is just about to get into its stride.
What drives all these enquiries is a conundrum. Take a look at the table of quoted and traded companies in Wales. There are just 23 – far fewer than Wales’ population and economic size would suggest as a share of the UK. Yorkshire, for example, has 50 per cent more people than Wales but five times as many quoted companies.
This raises a question: Is there a great unmet need in Wales for a local exchange, or are companies simply unwilling to list anywhere? The answer to that question will determine whether Wales, like many other small countries, will get its own exchange.
Ian Courtney, a public relations consultant, was approached to help with the Plus Wales study. While that project has stalled, he believes something similar could improve access to capital markets for Welsh firms.
“There is evidence of instances where the cost of capital and the cost of capital raising faced by Welsh companies have attracted a premium,” says Courtney. “It can never be proved whether this fully reflects the quality of the deal and the advice. Any measure, though, that can introduce new sources of liquidity and adds to the range of options available to Welsh companies is worthy of analysis.”
Just such an analysis is being carried out by Huggins at UWIC’s Cardiff School of Management. He is questioning 2,000 companies and looking at small exchanges around the world to establish the viability of a local market.
“We have a devolved administration,” says. “If we are going to take devolution seriously we need to think about what we can do for ourselves. One option would be to develop our own market – lots of other small nations have their own stock exchanges.”
Those include Oman, with a population slightly less than Wales; Malta, which has a similar population to Cardiff; and Ireland where some companies have a dual listing with London.
A key question for Huggins is whether a local exchange could narrow Wales’ competitive gap with the rest of the UK. He says: “Private companies are only accountable to their immediate owners, but plcs are accountable to a wider range of shareholders who want to grow the business.
“The north of England does not have its own stock exchange, but far more listed companies. They may not be geographically any closer to London, but it could be that they are psychologically closer.”
For companies, a Welsh exchange could make it easier to raise capital and give businesses a higher profile with local investors. It may also attract investors who have so far given up at the Severn Bridge or earlier.
But with the City of London just three hours from Cardiff, is there any any need for something more local?
Huggins reckons there may be. “The London Stock Exchange (LSE) is an international exchange and not really geared up for the types of companies in Wales,” he says. “Listing on the LSE can be very expensive – a smaller exchange could be more cost effective.”
And cost can be a deterrent. Sir Terry Matthews recently cited costs of £100,000 per year for his decision to take Newport Networks, the telecoms technology company he chairs, off the Alternative Investment Market (AIM). And AIM is a lower-cost alternative to the main stock exchange in London.
Huggins, who is investigating rather than advocating a Welsh exchange, believes 50 companies would be needed to set it up, moving towards a target of 100 or more over time. “The companies that are most likely to be interested would be on a steady or fast growth trajectory,” he says. “They would not be from any particular sector but I think we would probably see greater opportunities from the knowledge-based sectors, as we have seen in the past.”
But there are some imponderables. There is no way of knowing whether companies would leave the main London market, AIM or Plus to join a Welsh exchange or trading platform. Whether private companies joined may depend, in part, on what proportion of capital their owners could keep.
Laura Hampson, corporate finance director at advisory firm PKF, says Welsh companies have long been open to the idea of joining AIM: “Even the smallest companies talked about listing, although a lot more take the trade sale option.”
She adds: “There would be a lot of interest in a Welsh exchange, although it would struggle to focus solely on Wales. In the current climate it would be difficult, but when we start seeing the upside it could be something the Welsh economy would benefit from.”
The trick for supporters will be to launch it after investors regain optimism, but well before the market peaks.
Also in: March 2009
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