London is braced for the foreign invasion

News Analysis: As companies strive for global growth, they outgrow local markets. Capital needs can only be met by relisting on a major exchange
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The Independent Online
THE LONDON stock market is on the brink of a foreign invasion. As the listings of UK born-and-bred companies such as William Hill, the bookmaker, collapse amid institutional indifference, and others, such as engineer LucasVarity, are bought by US rivals, a swathe of overseas companies are pushing on with plans to list their shares on the London Stock Exchange.

Over the next few months, the blue-chip FTSE 100 is set to welcome three South African giants: South African Breweries, the mining conglomerate Anglo American, and Old Mutual, the country's largest insurer. The medium and small cap indexes could also be boosted by a number of foreign arrivals, as overseas companies such as the Hong Kong-based fashion retailer Esprit consider moving their primary listing to the UK.

The common thread behind the rush to the LSE is the companies' desire to grow beyond their national, or even continental, boundaries. The South African groups are a case in point: after strong growth following the removal of the economic shackles of the apartheid era, they found that the South African financial system was too small for their ambitions.

Take South African Breweries, whose shares start trading today. The world's fourth-largest brewer, SAB is reliant on South Africa for 60 per cent of its $5.8bn (pounds 3.4bn) sales. The brewer has to expand overseas and needs the capital.

Chief executive Graham Mackay says the Johannesburg Stock Exchange could not provide the resources to fund future expansion. "The move to London is driven by a desire to access a broader and deeper source of capital for the coming years. Remaining in Johannesburg would have meant being out of the race before it started." He believes that a place in the FTSE 100 and a market value of some pounds 4bn would supply the financial firepower to transform SAB into a true multinational.

The need for global reach was also behind the decision by Old Mutual to demutualise, distribute shares to members and move to London. The company, a powerhouse with insurance, banking and asset management activities, is even more rooted in South Africa than SAB, with 90 per cent of its pounds 4.6bn turnover coming from the country.

"We had become like HSBC [the Hong Kong banking giant] a few years ago. They had grown to such an extent in Asia they had to go somewhere else," says Eric Anstee, finance director.

The move was fiercely opposed by Nelson Mandela's government, worried that the capital outflow would further damage the ailing economy. But Old Mutual stood firm, arguing that the Johannesburg bourse, and the company's share price, would have crumbled under the weight of the pounds 4bn float.

About 25 per cent of Old Mutual's 3.2 million members are expected to sell their shares in the first few weeks, flooding the market with shares worth pounds 1bn - almost the total amount raised on the Johannesburg exchange last year. The share price would have plunged, leaving Old Mutual members worse off, says Mr Anstee. "The Johannesburg market is just not deep enough to take us on its own."

A London listing would certainly provide the required depth but it also brings a tough set of disclosure and corporate governance requirements. Anglo American will have to merge with Minorco, the vehicle for its non-South African activities, before moving to the FTSE 100. It will have to disclose its directors' salaries, shareholdings and bonus packages, kept secret for years. Michael Spicer, an Anglo director, believes the company will rise to the corporate challenge. "We have to conduct our business according to a new set of rules. During the apartheid era we had the old rules arising from a `hothouse economy' which was insulated from the rest of the world."

Anglo is confident it will fare better than its South African rival, Billiton, whose shares have almost halved since listing in London two years ago, hit by the fall in commodity prices. Mr Spicer claims Anglo has learnt some useful lessons from Billiton. "Their experience was unfortunate because of the timing. Commodity prices started falling right after they listed."

Not all the foreign companies coming to London are large and South African. Esprit, a fast-growing fashion group traded in Hong Kong, opted for a secondary listing in London in December. The move came as a surprise as the group is majority-owned by a Hong Kong-based investor and has its European headquarters in Dusseldorf, Germany.

"Before the move to London, we were still seen as an Asian company and that was the wrong message. Europe accounts for 65 per cent of our sales and we wanted to be seen as a global brand," says Heinz Krogner, chief executive of Esprit's European arm.

Mr Krogner, a German national, says London was preferred because of its twin status as a financial and fashion centre. "London is a fashion capital. It is also a very competitive retail market and being out there is better than sitting at home." He maintains that, if Europe retains the lion's share of the group's sales over the next few years, Esprit will consider moving the primary quote to London.

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