[LONDON] The fintech company that helped revolutionise the money-transfer business is going public in a novel deal that could signal if Brexit Britain can become a destination for fast-growing companies.

Wise, which was born as TransferWise, is eschewing a traditional initial public offering, opting instead for a direct listing Wednesday on the London Stock Exchange (LSE); shareholders are set to sell a stake of at least 2.4 per cent following a three-hour auction that will set the opening price. Wise won't raise fresh capital, while existing investors will be able to sell shares directly on the open market when trading begins.

While such transactions have become routine in New York, it's the first big tech listing of this kind in Europe and "a watershed moment for London", said Alasdair Haynes, chief executive officer of Aquis Exchange, a share-trading platform. "While one deal alone doesn't a city make, innovative deals of the kind will help establish the UK as a global hub that can compete with the US."

Wise, which was valued at US$5 billion in a July 2020 fundraising, is following US tech companies by offering existing shareholders extra voting rights. Popularised by the likes of Google parent Alphabet and Facebook, such dual-class structures have been a sore point in the UK because they allow a select group of early investors to retain tight control after a business lists.

STRUCTURE

If a success, Wise's listing would boost the British government's plans to allow dual-class share ownership on the top tier of the LSE, where they are currently prohibited. The proposed change is part of a wider effort to make it easier for companies to go public in London.

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Chancellor of the Exchequer Rishi Sunak last week promised to make London "the world's most advanced and exciting financial services hub". Wise, which counts billionaire Peter Thiel, Silicon Valley's Andreessen Horowitz and UK-based Baillie Gifford among its early investors, considered listing in the US "but London was the choice", chief financial officer Matt Briers said in a June interview. "London is a great place to access global capital, and it's also a great place to do a direct listing, a little-known secret that we are about to blow up."

Even with the UK government's proposed loosening of listing requirements yet to take effect, the Square Mile is overshadowing its continental competitors in the IPO market. London listings by companies from bootmaker Dr Martens to Russian discount retailer Fix Price Group raised a cumulative US$14 billion in the first half, the most for the January-June period since 2014, according to data compiled by Bloomberg.

EXTRA RIGHTS

As for Wise, Lewis Grant, a portfolio manager at Federated Hermes, said he has "fewer concerns" over the direct listing route than the use of unequal voting rights.

While Wise has "softened the concentration of voting rights, their proposed dual-class structure still violates the one-vote one-share principle", he said.

Wise said in its prospectus that the extra voting rights would expire after five years. It also reported that its revenue grew nearly 40 per cent to £421 million (S$783.3 million) in its latest financial year. Profit before tax for the year more than doubled to £41 million.

LSE PLEA

While all trading in London is preceded by a 10-minute opening auction, Wise's process will see the stock make its public market debut only after 11am on Wednesday, rather than the customary 8am start.

Still, the market is gearing up for some price swings. Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, expects trading to be a "volatile affair".

With Wise's trading debut being closely watched, the LSE published an extraordinary market notice on Monday, counselling members to react to price rather than influence it by putting in large orders during the opening auction. A smooth opening will contrast with the catastrophic debut in March of Deliveroo, whose shares tumbled 26 per cent in its first session.

"LSE is quite right to caution traders to behave properly, we would do the same at Aquis if we were hosting a listing of this kind," Mr Haynes said. "All eyes will be on London."

BLOOMBERG