IT WAS a major blow to the Irish Stock Exchange when two Irish companies last week chose to ignore the Irish stock market and opted for London share listings instead. If other budding plcs follow the route embarked by computer packaging group, ILP, and telecommunications firm, Stentor, by seeking share listings only on the London market, it could prove to be pretty disastrous for the Irish exchange.
The exchange was formally separated from the London exchange last December, after 22 years of union. Instead of becoming more vibrant, it is losing business to London. The omens for the future are not good.
The number of companies on the Irish exchange is dwindling because of takeovers. This is aggravated by DCC's relatively new policy of mopping up shareholdings in publicly quoted companies it does not already own. This decline will not be arrested if small expanding companies bypass Dublin.
The well worn track to the NASDAQ exchange in New York by high technology Irish companies is understandable. Indeed, the exodus to New York has also been experienced by other European markets. This trend will not be stopped.
In Ireland the Irish software company CBT Group had a flotation on NASDAQ last year, at a considerably higher multiple than would have been possible in Ireland. The shares rose more than 50 per cent on the first day and the plc was a heady historic 45. US investors like high technology companies and New York is the obvious place for companies, like CBT to go.
But the position of ILP which went for a full listing and Stentor which opted for London's Alternative Investment Market, is different. ILP is a supplier of specialised packaging for the computer industries and, as such, should have been ideal for the Irish market. Similarly, Stentor should have been able to raise its planned £3.5 million on the Irish market.
However, ILP felt a placing of shares on the Irish market would have been difficult because of the reluctance of Irish institutions to invest in small companies. That, regrettably, is true. In addition ILP was able to get a better rating for its shares in London. This is because there are specialised funds available in London, and British institutions are optimistic about the underlying strength of the Irish economy.
The problems for the Irish exchange are that institutions are reluctant to invest in small companies, and there are no special facilities to cater for such companies.
Quarterly surveys of Irish managed funds by Irish Pensions Trust clearly shows that an increasing proportion of institutional funds are being invested abroad. In 1993, for example, 41.3 per cent of the total invested was in overseas assets. This rose to 43.3 per cent in 1994 and increased again to 44.5 per cent by last December. The proportion varied considerably from 55.5 per cent to 36.0 per cent - between the different companies. Just 1 per cent represents around £12 million.
The Irish exchange plans to attract companies to seek a listing through a new market called the Developing Companies Market (DCM). This would have less onerous requirements, would be less costly (costs could be in the region of £80,000) and would be an alternative to London's Alternative Investment Market. The Irish exchange is also trying to get tax concessions for that market which would have BES type reliefs.
While this would be a welcome move it would only partly address the problems. It may appeal to companies such as Stentor. But it would have no appeal to groups like ILP because it has gone for a full listing, so a more restricted listing would not have appealed. In the placing of shares, ILP wanted to draw in institutions as shareholders.
The DCM would be restrictive because a BES type scheme would require investors to hold the shares for five years and it would be directed at personal investors and not at institutions.
Nevertheless, this new market which will probably not be ready until near the end of the year, should be launched as soon as possible. The Irish Stock Exchange is at a crossroads.
