WE Soda’s coming to London. Why?

Craig Coben is a former global head of equity capital markets at Bank of America and now a managing director at Seda Experts, an expert witness firm specialising in financial services.

Rejoice! WE Soda, the world’s leading producer of soda ash, has announced an intention to float on the London Stock Exchange (LSE). The company is apparently “targeting a valuation of about $7.5bn [equity value], enough to enter the FTSE 100.”

The news has been hailed as a “much needed boost” and a “ray of light” for the City amidst an IPO drought and a succession of planned de-listings from the LSE.

The CEO of WE Soda, a former senior investment banker, explained to MainFT why it chose London as its listing venue:

“In London, we can be a big fish in a relatively modest-sized pond,” WE Soda chief executive Alasdair Warren said in an interview. “The reason we chose London is because we are a Europe-centric business, UK-based and our founder is a resident here . . . within industrials and extractives, it’s a good place to be listed.”

Fears for the future of the London market have deepened after Arm, the chip designer, spurned government entreaties to list in the UK and CRH, the world’s largest building materials group, announced plans to switch its listing to Wall Street.

“There’s benefits [to companies] coming at a time when nobody else is as you get a lot of attention,” Warren added.

These are all credible and sensible reasons to list in the UK. But there’s more behind the decision.

First, it confirms London as the default listing exchange for emerging markets companies when they have nowhere else to list. With its incorporation and headquarters in the UK, WE Soda is British in form, but Turkish in substance: its principal shareholder is a Turkish mogul, and most of the production assets are in Turkey.

Istanbul has a lively stock exchange, but Turkish equities are virtually uninvestable. The Great British peso may have devalued post-Brexit, but it has not been thoroughly debased and debauched like the Turkish lira. Inflation in Turkey remains very high, with month-on-month increases stabilising only due to base effects. Following President Recep Tayyip Erdogan’s re-election, investors fret that the government could resort to capital controls to stabilise the lira, and these in turn could affect dividend repatriation.

Any Turkish business that can credibly list abroad — such as an exporter like WE Soda whose revenues are denominated in US dollars and Euros — will do so.

WE Soda’s upcoming IPO is a throwback to the heyday (if that’s the right term) of emerging-markets company listings on the LSE. The flow of these IPOs dried up over the last ten years for diverse reasons, ranging from weaker commodity prices to more developed domestic capital markets to the deterioration of relations with Russia since its 2014 annexation of Crimea.

That said, London’s status as LVLR (listing venue of last resort) is not entirely secure, as Brexit has made Amsterdam a viable alternative. While Polish drinks company Stocks Spirits IPO’d on London in 2013, Kraków-based parcel locker business InPost chose Amsterdam for its 2021 IPO.

WE Soda could have chosen to list on a Continental exchange. Presumably London’s bigger size and reach — along with the fact that WE Soda had already incorporated several years ago in the UK — tipped the scales this time. London may not be so fortunate in future.

Second, WE Soda’s decision does not herald the arrival of new age sectors into the London market. Much of the discussion about reviving UK equity capital markets revolves around attracting venture capital-backed companies in cutting-edge tech and biotech fields. Indeed many of the recent changes to UK listing rules, such as reducing free float requirements and allowing dual-class share structures, were specifically aimed at promoting “growth and innovation.”

But this is not an IPO of a disruptive technology player. Natural soda ash has a key role for sustainable solutions, but this is fundamentally a chemical company with industrial applications. London craves avant-garde companies, but it still appeals mostly to arrière-garde industries.

Third, the shares on offer to retail investors is meagre: just €8mn (£6.95mn) in total via the PrimaryBid platform. This has to do with the intersection of two legacy EU rules: the requirement for a minimum six-day offer period in a public offering, coupled with a rule capping retail investor allocations at €8mn if there is no prospectus. To avoid the six-day period, the IPO uses a pathfinder not a prospectus and so is structured effectively as a private placement with a bolt-on small retail offer.

In effect, the rules end up taking the “public” out of what is supposed to be an initial public offering. It is hard to nurture an equity culture if you don’t let retail investors past the velvet rope and into the VIP lounge of IPO allocations. Change is long overdue and both rules have been slated for amendment. But as Tom Petty used to sing, “the wai-ai-aiting is the hardest part.”

Fourth, the offering is not a litmus test for the London market. IPOs globally — whether Milan, Frankfurt, or Hong Kong — have been dogged by soggy demand and milquetoast aftermarket buying, especially from so-called “long-only” investors who have suffered losses after acting as cornerstone investors in 2020- and 2021-vintage IPOs. The WE Soda outcome will be down to market conditions, soda ash prices, credibility of forecasts and myriad other factors. The listing exchange is largely irrelevant to the success or failure of the deal.

So London won’t save or scupper the deal. It’s down to markets, management, and the company. And that’s how it should be.