IPO laggards’ race to the bottom misses the target

MILAN, Nov 10 (Reuters Breakingviews) – Italy is scrambling to make its stock market more attractive. Prime Minister Giorgia Meloni is siding with UK peer Rishi Sunak in watering down her country’s listing rules in a bid to stop firms floating overseas. Like Sunak, she may find that bigger factors keep the exodus going.

Meloni is responding to a worrying trend. Over the past few years, some prominent companies have moved their listing venue abroad. These include Exor(EXOR.AS), the investment vehicle of the Agnelli family, which moved to Amsterdam. Fashion brand Ermenegildo Zegna , meanwhile, picked New York, hoping for a higher valuation across the Atlantic. On Tuesday, $14 billion truck and tractor maker CNH Industrial (CNHI.MI) said it would ditch its listing in Milan, where shares now trade at an average 50% discount to global stocks, and only keep trading in the more liquid U.S. market.

That exodus, and a shortage of fresh IPOs, means Milan is in danger of becoming a backwater. At a peak of around 800 billion euros in 2021, the total market capitalisation of the Milan stock exchange was just 0.5 times Italy’s GDP, the lowest ratio among major European listing venues and compared with 1.5 times for Paris and 1.7 times for Amsterdam, Italian Economy Ministry data shows.

To improve Milan’s allure, Meloni’s government is planning to allow company founders to multiply their voting rights to up to 10 times in the run-up to actually listing. Current Italian rules ban listed firms from issuing multiple-vote shares, except in the form of loyalty stocks that confer double voting rights to investors that have been holding them for at least 24 months.

Companies rushing to list in the Netherlands are no doubt attracted by its lax approach to companies with dual voting share classes. Adopting similar rules may tempt some of the many family-owned firms that form the backbone of the Italian economy to consider a market debut. Italy is not the first country to go down this route: Britain proposed in May to award shares with unlimited voting rights to company directors for up to 10 years.

Yet a stock market’s attractiveness rests on multiple factors. Market participants complain that red tape and fear of legal wrangling slow down listings in Italy. Companies will ultimately float where there is most liquidity, favouring bourses such as New York. And Italy, like Brexit-ravaged Britain, faces bigger structural problems. Doubts over the sustainability of Rome’s high public debt push up listed companies’ cost of capital, depressing their valuations and making the stock market less appealing.

Ideally, Europe’s many national bourses would combine. That would create a vast, more liquid market to rival New York, and one less influenced by any one country’s domestic worries. Until then, politicians’ tinkering with governance is likely to deliver modest returns.

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CONTEXT NEWS

Farm and construction equipment maker CNH Industrial, worth $14 billion, said on Nov. 7 that it planned to delist from Milan and retain a single listing in New York.

An Italian parliament committee approved on Oct. 10 a measure to allow listed companies to issue shares giving key investors up to 10 times voting rights each, as part of efforts to stem relocations of corporate headquarters to the Netherlands or even the United States.

Italy is seeking ways to boost the Milan bourse’s allure and keep firms domiciled in their homeland, as a growing number of companies have moved their listing or domicile to Amsterdam to keep their grip on their family holdings.

The UK Financial Conduct Authority published on May 2 a series of proposals designed to encourage companies to list in the UK. The proposed sweeping reform of listing rules lacks consensus on how aggressive the new regime should be in persuading firms to list in London rather than New York, Reuters reported on Sept. 25 quoting an executive from the FCA.

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