By Fiona Le Poidevin, CEO, Channel Islands Securities Exchange
If 2017 proves to be anything like as historic as 2016, then we’re in for one unpredictable ride. What Trump’s victory in the US presidential election and the vote for Brexit have prolonged is the period of uncertainty, which is what seems set to prevail during the next 12 months.
In this environment, fundraising in the capital markets has been much more restricted. This has been especially the case on the London Stock Exchange (LSE), where there have been only a handful of initial public offerings (IPOs) during the past year.
However, Guernsey and Jersey vehicles do remain the first choice among those establishing listed structures. There is also capital waiting in the wings to be invested in projects with exposure to alternative asset classes, such as peer-to-peer lending or fintech, and/or especially where that’s able to generate a stable income stream, such as property.
REITs regime
The vote for Brexit and the subsequent exchange rate changes initially hit the UK property sector, with open-ended funds gating in a bid to stop investors redeeming. This follows a similar situation to the financial crisis, but in the Channel Islands we are now much more familiar with property – an illiquid asset – being held in closed-ended fund structures and real estate investment trusts (REITs).
We have seen particular growth in the number of vehicles choosing to list on the CISE who are availing themselves of the UK REIT regime. This reflects the growing interest seen in property in recent months since the Brexit vote, as international investors, including sovereign wealth funds, seek to take advantage of the cheaper UK property market.
Our regime has proved particularly attractive for REITs which have a small number of significant institutional investors and don’t require the same levels of liquidity offered by the LSE’s Main Market. However, there has been a recent trend towards the CISE also proving attractive to more widely held REITs, and today a quarter of all UK REITs are listed on our exchange.
Fundraising impact
We are also seeing companies seeking to use the capital markets in different ways to raise funds. For example, there has been continued growth in the number of Main Market and AIM-quoted companies issuing convertible debt, rather than equity, as a more convenient and cost-effective method of attracting new capital.
The low-interest-rate environment has also helped stoke the high-yield bond market, although this is looking more unpredictable in the face of interest rate pressures, particularly in the US.
The CISE has seen the development of a new pipeline of business in high-yields bond following the EU’s introduction of the Market Abuse Regulation.
This has put in place a raft of obligations for securities traded on EU facilities that are disproportionately onerous on high-yield bonds. As such, issuers who would have previously listed products on EU markets are increasingly using the CISE, where there are robust yet proportionate rules.
We have been presented with this opportunity because of the fact that we are in Europe but outside the EU. This position already helps the Channel Islands to act as conduits for global capital flows, and now there's a chance for us to enhance that by supporting investment into a UK economy that's had its growth forecasts cut following the Brexit vote.