New listing category for overseas companies with a secondary listing in the UK

As part of the package of reforms to the UK Listing Rules (“UKLR”) the FCA has established a standalone category on the Official List for companies incorporated outside of the United Kingdom with a qualifying home listing as from 29 July 2024 (the “Implementation Date”).  

This category is known as the Equity shares (international commercial companies secondary listing) category (the “International Category”). It is targeted at companies with a primary listing on a non-UK market and companies that are incorporated outside the UK. The International Category imposes obligations that are very similar to the Listing Rules as they applied to issuers on the standard segment (“Standard List”) prior to the Implementation Date and the rules have been tailored for issuers seeking a secondary listing. This category is designed to accommodate overseas companies where either domestic company law or rules flowing from the issuers ‘primary’ listing venue may make it more difficult to meet certain requirements applying to issuers on the Equity shares (commercial companies) (“ESCC”) category.

In this article, we have considered some of the key features of the International Category. 

Eligibility requirements 

Not all companies with a primary listing located outside the UK will be able to secure a listing on the International Category. A summary of some of the key eligibility requirements for the International Category which are set out in UKLR 14 is set out below: 

• Commercial Company: The applicant must be a commercial operating business which excludes cash shells and investment vehicles (UKLR 14.1.1). There are separate listing categories for cash shells and closed/open-ended investment companies
   

• Non-UK Company: The applicant must be incorporated outside of the United Kingdom (UKLR 14.2.1). The FCA has made it clear in its response to the consultation on the changes that a UK incorporated company with a primary listing overseas cannot seek a secondary listing on the International Category
   

• Qualifying Home Listing Requirement: The applicant must have a “qualifying home listing” in accordance with UKLR 14.2.6, which is a new concept in the UKLR. To be a “qualifying home listing” the relevant securities need to be admitted to trading in a market which is (i) regulated overseas, (ii) regularly operates, (iii) is a recognised open market and is overseen by a regulatory body that is a signatory to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (the “IOSCO Memorandum”). Signatories to the IOSCO Memorandum are broadly the FCA equivalent bodies in each of the signatory jurisdictions which are responsible for regulating public markets. The signatory bodies come from a wide and diverse list of jurisdictions, including, well established jurisdictions (such as Australia, the United States and each of the Canadian provinces) and other less highly regulated jurisdictions. Also the relevant securities must be capable of being traded on the market of the “qualifying home listing” and be in the same class as the equity shares admitted to trading pursuant to the “qualifying home listing”
   

• Central Management and Control: UKLR 14.2.4R provides that the issuer’s central management and control must be situated in, either the country of its incorporation or the country of its qualifying home listing. This requirement was introduced as the FCA were concerned that without it issuers may adopt opaque and complex structures that meet the “qualifying home listing” requirement but which limit the FCA’s ability to effectively supervise those issuers and enforce against its rules where necessary. UKLR 14.2.5G provides that where an the issuer is unable to comply with UKLR 14.2.4R the FCA may make exceptions to this rule for issuers on a case-by-case basis by way of dispensation or modification, provided that the issuer’s operational and governance arrangements are not intended to reduce, and do not have the effect of reducing the FCA’s ability to monitor an issuer’s compliance with their obligations and responsibilities under the UKLR, Disclosure Guidance and Transparency Rules (“DTRs”) and corporate governance rules, as applicable
   

• Jurisdiction: The FCA can refuse to admit equity shares to the Official List if an issuer’s equity shares are not listed in the country in which they are incorporated or in a country where the majority of the applicants’ shares are held, unless it is satisfied that the absence of the listing is not due to the need to protect investors. This is a historic requirement which has been carried across from LR 14.2.4R to UKLR 14.2.8. The FCA may ask an applicant’s board to explain the reasons for obtaining a qualifying home listing outside of the jurisdiction where the company is incorporated (UKLR 14.2.9G) and what motivated this decision. If an issuer is unable to provide the FCA with a commercial justification for listing in a certain overseas market the FCA is likely to look upon their application unfavourably
   

• Prospectus: In accordance with UKLR 3.2.10R (which sets out the eligibility requirements for all securities being admitted to the Main Market), a prospectus is required in connection with a listing on the International Category
   

• Market Capitalisation: There is a minimum £30m aggregate market value requirement for all new issuers on this category (UKLR 3.2.7R)
   

• Freefloat: There is a minimum of 10% free float (UKLR 14.2.2) which follows the same definition as under the old rules and as before excludes parties locked-in over 180 days, shareholders (acting alone or in concert) with 5% or more of the issued shares in aggregate, any person who has a right to nominate a director of the applicant, trustees of any employees’ share scheme or pension fund established for the benefit of any directors and employees of the applicant’s group, directors of group companies and their connected persons
   

• Electronic Settlement: The Admission and Disclosure Standards of London Stock Exchange requires that all securities admitted to trading on the Main Market are eligible for electronic settlement. The shares of issuers incorporated in the UK, Isle of Man and the Channel Islands are generally eligible for electronic settlement through CREST. In some jurisdictions (mainly Commonwealth countries and the US) registrars are able to create depositary interests (“DI”) in the issuer’s shares that are eligible for admission to CREST. In other jurisdiction issuers will need to establish a global depositary receipts (“GDR”) to facilitate electronic trading
   

• Transferability: The UKLR also require the shares to be freely transferrable, fully paid and free from all liens and from any restriction on the right of transfer (except any restriction imposed for failure to comply with a notice under section 793 of the Companies Act 2006 (Notice by company requiring information about interests in its shares)

Sponsor 

An issuer is not required to appoint or retain a sponsor when listing on the International Category, but a sponsor will be required in certain situations (such as moving to the ESCC). 

Continuing obligations

The continuing obligations for issuers with shares admitted to the International Category are not as onerous as the obligations applicable to issuers whose securities are listed on the ESCC category and they are based on the requirements that would have applied to issuers on the Standard List prior to the Implementation Date. For example, there is no requirement to adopt the UK Corporate Governance Code. Instead, there is a requirement to comply with DTR 7.2 which requires the Company to include a corporate governance statement in its directors’ report which must include details of the corporate governance code the issuer is subject to and any corporate governance code it has voluntarily adopted. The issuer also needs to provide details of the corporate governance practices applied over and above the requirements of national law. The FCA has tried to ensure that the continuing obligations do not duplicate, and are no more onerous, than those of the company’s qualifying home listing.

Rules for the International Category, as was the case of the Standard List, do not require issuers to obtain shareholder approval for a reverse takeover (“RTO”) (UKLR 14.4), which defers from the ESCC where such approval is required. However, the issuer (or its sponsor if it has one) must consult with the FCA as early as possible before a reverse takeover which has been agreed or is in contemplation is announced or where details of the reverse takeover have leaked. This is in order to discuss with the FCA whether a cancellation of listing is appropriate on completion of the reverse takeover.

A company on the International Category is required to comply at all times with the eligibility requirements and rules of the market of the company’s qualifying home listing and must notify the FCA as soon as possible if it no longer complies (UKLR 14.3.2R).

It should be noted that issuers on this category will still need to comply with certain requirements under the DTRs, including, DTR4 (Period Financial Reporting), DTR5 (Vote Holder and Issuer Notification Rules) and DTR6 (Continuing Obligations and Access to Information), as well as certain elements of DTR7 (e.g. Rule 7.2 Corporate Governance Statements and Rule 7.3 on Related Party Transactions).  

Companies on the International Category also need to report on whether or not they comply with the Task Force on Climate-related Financial Disclosures (“TCFD”) related reporting requirements and if not explain why. Concerns were raised in the consultation concerning the ability of overseas companies to comply with these rules but the FCA rejected these concerns although it said it would keep this under review as they look to revise the climate-related financial disclosure rules as international standards evolve from TCFD to International Sustainability Standards Board (“ISSB”) based disclosures and as there are developments on reporting in other jurisdictions.

Moving listing category and sponsor involvement

Companies listed on the International Category may use a modified transfer process in UKR 21.5 and UKLR TP 5 to apply to transfer their listing to the ESCC category. To do this the issuer must comply with the FCA’s eligibility requirements, however in the case of a transfer from the International Category the eligibility requirements are limited to UKLR 5.2 (Externally managed companies), UKLR 5.3 (Controlling shareholders) and UKLR 5.4 (Constitutional arrangements). This is to avoid the issuer needing to be reassessed against any eligibility criteria that may apply that they had previously demonstrated that they had met at the original point of admission to listing.

The issuers must appoint a firm to carry out a targeted sponsor service focused on the additional obligations only. For instance, sponsors are not expected to undertake a broader assessment of the issuer’s procedures, systems or controls and the sponsor can presume that an issuer that has already been subject to and complying with relevant UKLR (and previously LR), DTR and MAR obligations by virtue of its existing listing has appropriate systems and controls in place unless information arises during the course of its work to indicate otherwise. However, a sponsor would have an obligation to confirm to the FCA that it has not identified any adverse information that would lead it to conclude the issuer would not be able comply with the ESCC category listing requirements. This negative form of confirmation differs from the positive form typically provided by sponsors, such as in relation to a new applicant.

The FCA will expect sponsors to carry out due diligence to support its opinions and confirmations as well as for its own commercial and wider regulatory purposes, including take-on, reputational risk and conflict checks. There is no reassessment of the market capitalisation requirement as part of the modified transfer process to the ESCC.

Commentary

The rules established in this area create an attractive environment for international companies to access the London public markets. A secondary listing in the UK may be an appealing option for an overseas company looking to raise its profile in the UK and obtain greater access to investors and capital. The eligibility requirements and continuing obligations should not be overly onerous for companies that are already listed on established markets which mean there should be limited conflicts between the rules in London and those of a primary listing.