BlackRock sparked IPO row with explosive open letter
THE ROW over banks’ IPO activities was first ignited after BlackRock, the world’s largest institutional investor, sent an explosive letter to several leading investment banks.
The devastating broadside on the way company listings on the stock market are handled exposed how some banks were providing clients with unrealistic valuations for their companies in order to win business.
“We are concerned that companies are appointing advisors based on indications of valuation that are unrealistic,” the letter said.
It also criticised the structure of fees to reflect the price achieved on the first day of trading, as well as a whole series of other practices.
Penned by highly-respected BlackRock managing directors Luke Chappell and James Macpherson, the letter brought into the open tensions within the City community.
It raised concerns that the number of banks on the syndicate for an IPO did not “appear to benefit the process of price formation”.
BlackRock added that it is likely to be much less constructive on IPOs with large syndicates.
The US institutional investment house hit out at the information made available on companies looking to float, criticising limited meeting time with firms. It also said there was a “disparity” between investors and banks on expectations of governance.
“It is in all of our interests for London to remain at the centre of a thriving capital market. However, recent developments in the IPO market have, at times, been frustrating,” the letter said.