UPDATE: FTSE Lifts Free-Float Rule To 25% Citing Governance
15 December 2011 - 1:26AM
Dow Jones News
Responding to mounting concerns that big shareholders can exert
undue influence on firms with equity that is thinly traded on
London's blue-chip FTSE 100 index, owner FTSE Group is lifting its
minimum free-float rule to at least 25%, the company said
Wednesday.
FTSE, which operates indexes including the FTSE 100, said in a
statement that, in a market consultation, 83% of respondents said
the FTSE should apply a minimum free-float threshold of 25% for
U.K.-incorporated companies in FTSE indexes. The previous threshold
was 15%, with exceptions for some very large companies.
The move is a response to growing concerns among institutional
investors that companies--often with most of their operations
outside the U.K.--reap the benefits of increased liquidity and
access to cheap debt and equity-issuance that a FTSE-inclusion
brings, without the need to abide by the corporate governance
standards that U.K. institutional investors require.
A number of oligarch-controlled Russian companies have listed in
the U.K. in recent months, including Polymetal International PLC
(POLY.LN) and Evraz, which recently gained entry into the
prestigious FTSE 100 by swapping Moscow-listed shares and global
depository receipts for shares in new holding companies. Meanwhile,
Glencore International PLC (GLEN.LN), the commodity trading giant,
was included in the FTSE 100 days after listing with about a 16%
free float.
"With the guidance and direction of FTSE's independent
practitioner committees, FTSE regularly consults the market on
changes to the ground rules of its indices to ensure that the
indices continue to meet investors' requirements and define and
lead global standards in indexing," FTSE Group's Mark Makepeace
said in a statement. "Both FTSE group and our shareholder, the
London Stock Exchange Group, recognize that this strong stance on
governance underpins the value of our business."
The Association of British Insurers, which had called on FTSE
Group to raise the threshold, welcomed the move, which a spokesman
described as "a welcome step towards addressing our concerns."
The FTSE policy change will give companies whose free floats now
fall below the 25% threshold two years either to raise their free
float or lose their index status. It applies only to
U.K.-incorporated companies included in the FTSE All-Share index,
which includes the FTSE 100, the FTSE 250 index and the FTSE 50
index.
The rule will come into force for new entrants Jan. 1, 2012.
Six companies, largely concentrated in the resources sector,
will be affected by the policy changes are Essar Energy PLC
(ESSR.LN), Eurasian Natural Resources Corp PLC (ENRC.LN), Evraz
Group PLC (EVRZ.LN), Fresnillo PLC (FRES.LN), Glencore and Ferrexpo
PLC (FXPO.LN), people familiar with the matter said. All are
U.K.-listed resource companies in the FTSE 100 index and all except
Glencore are domiciled in the U.K.
Some of the companies indicated that they were prepared to take
steps to bring their free floats in line with FTSE Group's
threshold as soon as possible. ENRC, in a statement, said it would
take "appropriate steps" to comply. ENRC's free float is 18.4%. The
chief executive of Russian steelmaker Evraz, Alexander Frolov, said
it would be easy to place a small stake in the market to allow the
company to comply with th new listings rules. Evraz currently has a
24.8% free float.
ENRC this year became a particular focus for worries about
corporate governance of some U.K.-listed firms after it ousted two
independent board members.
-By Jessica Hodgson, Dow Jones Newswires; +44 (0) 7561 424788;
jessica.hodgson@dowjones.com
(Rhiannon Hoyle contributed to this article.)