New issues face investor boycott: Fund managers get cold feet after spate of flops

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The Independent Online
PROFESSIONAL investors are threatening to boycott the market for new share issues, following the recent spate of flotation flops. Already there have been casualties, with at least one flotation being pulled.

In a further blow for stock market debutantes, the Stock Exchange has run into growing opposition to its plan for an Alternative Investment Market for smaller companies.

The threatened new issue boycott follows a series of flotation embarrassments. The latest of these were McDonnell Douglas Information Systems (MDIS) and Aerostructures Hambles, two recently floated companies which shortly afterwards issued profit warnings, sending their shares plunging.

Samuel Montagu, the merchant bank, which was planning to raise money for Boxes, a carton manufacturer, has had to call off the plan because of the deteriorating climate.

Other companies are pressing ahead with plans to raise capital through the stock market, but at lower prices than they originally wanted.

Shares in Games Workshop, a fantasy wargame maker, were placed with institutions last week at just over half the originally intended price, to raise only pounds 12m instead of the previous pounds 20m target.

Other upcoming new issues include the pounds 225m flotation of lighting manufacturer TLG, the pounds 70m float of the Bright Reasons restaurant group and the pounds 150m float of New Look fashion shops.

Sponsors of companies hoping to raise money for the first time on the stock market are being told by their sales teams that some institutions are no longer interested in investing in the new issue market. Others have said that they might consider investing as long as the sponsors of an issue do not include any involved in one of the recent flops.

The sponsors to the MDIS and Aerostructures were Barings and N M Rothschild respectively. Rothschild is trying to float Century Inns, which runs more than 300 pubs. 'The tone of the market has clearly deteriorated,' says Ken Robertson, investment director at Scottish Widows, a leading mutual insurer and investment institution. 'People are feeling sore. I think from our standpoint we will be much more discriminating in the future and will invest markedly less in the new issue market.'

Mr Robertson played down stories that Scottish Widows had withdrawn altogether from the new issue market. 'It's not the case that we have imposed a blanket ban, but we judge that we will be much more selective about what we invest in. People are querying everything. Institutions are querying their own investment approach, and they are querying the integrity of the companies involved and they are asking questions about the priorities of the sponsors. There has been such a high number of new launches that have stumbled early on that it has left investors who were supportive of the general idea of providing capital for newish ventures feeling hurt and sore.'

One merchant banker, still hopeful of bringing a company to the market in the next few weeks, said: 'I have never known a situation like this. It's the worst I've known things for around eight years.'

A fund manager for one of the City's largest investment institutions said: 'This has been highly embarrassing for the advisers associated with these floats.'

But the institutional coolness has not deterred International Trade and Exhibitions Group, the trade show organiser, which will tomorrow announce plans to come to the stock market next year.

At a meeting last week with the City Group for Smaller Companies, Michael Lawrence, chief executive of the Stock Exchange, faced what was described as 'energetic questioning' over the real costs of the planned Alternative Investment Market.

His proposal has failed to quell calls for a European version of Nasdaq, the US over- the-counter market that rivals the turnover of the New York Stock Exchange.

Stephen Breslin, of Ethical Holdings, a UK company listed on Nasdaq, argued that a Euro- Nasdaq might offer smaller companies access to a wider pool of capital.

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