Key legal and regulatory developments driving and shaping M&A
Since our last update the Brexit drama has, if anything, intensified. In May, Prime Minister, Theresa May, sought to break the current deadlock in the House of Commons by announcing a ‘new’ Brexit deal that included a vote for MPs on whether the deal with Brussels should be subject to a referendum. However, Mrs May misjudged the mood of MPs and following her announcement there was high political drama that included one cabinet minister resigning and others threatening to resign. The resignations and threats of resignation made Mrs May’s position untenable and following her resignation as leader of the Conservative Party we now find ourselves in the midst of a leadership contest between Jeremy Hunt and Boris Johnson.
How Mr Hunt and Mr Johnson will deal with Brexit remains to be seen and judging by the statements they have made on the campaign trail it is still unclear whether a Johnson or Hunt premiership would be more willing to take the UK out of the EU without a deal. The BBC reports that Mr Hunt “wants to leave with a deal, but says he would back a no-deal Brexit with a heavy heart if necessary” and Mr Johnson, “vows to leave the EU by 31 October come what may but claims the chance of a no-deal Brexit is a million to one”. Simon Lovegrove in his Brexit update covers the political drama and the latest from the UK regulators in their preparations for a no-deal Brexit including the FCA / ESMA communications on the share trading obligation.
But it’s not just the UK’s relationship with Europe that has recently hit the headlines. The EU’s dispute with Switzerland over the terms of access to their respective share trading markets is a stark reminder of what might await the UK in October.
In London Climate Action Week kicked off on 1 July and was launched in response to Mayor Sadiq Khan declaring a ‘climate emergency’ last December. Climate Action Week was followed by the Government’s first Green Finance Strategy which included a declaration that the UK will be net zero for carbon emissions by 2050. To address the impact of climate change, asset managers have been rising to the challenge by creating climate themed products which select or overweight stocks based on their climate transition fitness. Some funds have gone further by excluding companies involved with fossil fuels. In terms of corporate activity in this area, it’s worth noting that it has been reported that HSBC Global Asset Management will launch a green bond fund from emerging markets later this year. The fund will be based on the HSBC’s Real Economy Green Investment Opportunity approach, offering institutional investors the opportunity to invest in emerging green corporate bonds.
In their article ‘Sustainable finance is a trend set to stay’, Imogen Garner and Beth Duff look at both EU and UK regulatory developments in this area noting in particular that the asset management industry is embracing sustainable finance developments which is, in some cases, driving work streams. Given the importance of sustainable finance, we have launched on our online Asset Management Regulation hub a new ‘ESG insight’ page containing useful materials on environmental, social and governance issues. It is also interesting to note that sustainable finance is not confined to Europe as shown in the update from our Hong Kong office (Etelka Bogardi and Amy Chung) dealing with the SFC raising disclosure requirements for green or ESG funds.
In one other development, there has been considerable concern expressed around open ended funds which invest in apparently illiquid asset classes such as unlisted stock and real estate. These liquidity mismatch concerns have heightened following gating on Neil Woodford's flagship, Equity Income Fund. It was announced in July that the Bank of England is launching a review into the £1.2 trillion open-ended fund market to safeguard financial stability. The Bank will work with the FCA and will focus on the risks caused by funds that let investors redeem their interests and pull money out despite being backed by assets which may be difficult to realise quickly.
Brexit uncertainty in the run up to 31 October has no doubt had an impact upon fundraising activity, particularly on listed markets. That said, we have seen continued investor appetite for alternative asset classes with strong income producing characteristics. US Solar Fund, a UK investment trust company, launched in May having raised US$200m and Aquila European Renewables Income Fund raised c.150m Euros in its recent IPO. Aircraft fund, Voyager AIR, announced its Specialist Fund Segment IPO earlier this month. In addition there has been some strong recent secondary fundraising activity by existing funds, of particular note being Greencoat UK Wind’s £375 million raise under its share issuance programme in May. As we head into the holiday period, things can be expected to be a little quieter, but the big influence on activity in the Autumn remains the achievability of the October Brexit deadline and whether any sort of revised exit deal is achievable.
It is impossible to ignore that climate change and sustainability issues are scorching hot topics (pardon the pun).
© Norton Rose Fulbright LLP 2021