As the Minister for Finance seeks to convince multinationals they are safe in Ireland in the wake the European Commission's €13 billion Apple tax ruling, Deirdre Somers is preoccupied with matters closer to home.
The chief executive of the Irish Stock Exchange, grappling for years with some of the State's largest companies moving their main listing to London, is trying to find the next generation's Ryanair or Kerry. But the tax laws are stacked against them – and her.
“Ireland has spent a huge number of years benefitting from a very good and very clear agenda around attracting foreign direct investment,” said Somers. “But a sustainable economy has to be about encouraging indigenous high-skill, large-scale industry.”
While Ireland is a great place to set up a business, existing tax rules hamper entrepreneurs trying to grow. This makes it almost inevitable that companies ultimately end up being sold, rather than scaled up and floated.
"At every turn, the balance between sale versus growth is always going to be sale," Somers told The Irish Times this week, as the exchange reported 25 per cent profit growth for 2015.
“We have a very poor tax policy around entrepreneurial relief, a very poor tax policy around CGT [capital gains tax] rollover relief , a very poor tax policy on stamp duty, and a very poor tax policy on share options,” said. “And these are all the tools that enable companies to scale rather than sell.”
Multinational nerves
Her picture of the struggles faced by Irish businesses can be set in sharp relief against the Government's efforts to calm the nerves of multinationals looking on as the EU targets Apple's Irish tax affairs. Michael Noonan, the Minister for Finance, has highlighted repeatedly that the EU is not targeting the State's low-tax regime, a cornerstone of Ireland's development policy.
The fact that Noonan is turning his nose up at a €13 billion windfall, risking a public backlash, is largely to maintain Ireland’s appeal to overseas groups, mainly in the technology and pharmaceutical space.
The world’s major credit ratings agencies are keeping a watching brief, with Standard & Poor’s saying on Thursday: “Should the concerns about Ireland’s attractiveness as a place to do business be warranted and the country’s economic dynamism suffer as a consequence . . . this could lead us to reconsider our economic assessment.”
For Somers, fledgling Irish businesses that might one day harbour hopes of a stock market flotation shouldn’t be forgotten.
"We have made numerous representations to the Department of Finance to try to come up with a cohesive tax policy that at least creates the environment where [indigenous] companies are given the tools to scale," she said. "And it would be very nice to see those coming into the budget considerations."
2015 profits up
The Irish Stock Exchange’s after-tax profit last year came to €6.7 million. Revenues rose by 12 per cent, to €27.8 million, amid record trading on its markets in 2015.
In addition, turnover in Irish equities and on the Iseq 20 exchange-traded fund jumped 32.5 per cent last year, buoyed by four initial public offerings and rising stock values.
However, that growth rate has slowed to 11 per cent in 2016. The Iseq has dropped 10 per cent and the IPO market has all but dried up globally.
CRH, Greencore, Smurfit Kappa and Grafton Group have moved their primary listing to London in recent years, and in Grafton's case maintains no Irish listing. But the exchange has also attracted three real estate investment trusts, or Reits, giving stock market investors access to the commercial property market as it began to recover from the downturn.
Somers said she would be disappointed if she didn’t see two of the 10 companies that have participated in its “IPOready” initiative, which prepares so-called high-potential firms for flotation, make it to the stock market within the next 12 months.
“We’d be quite optimistic,” she said, “but nobody is going to come to the market when it’s a bad market.”
Wall Street is going through its worst IPO market since the height of the financial crisis in 2009, amid concerns about China’s slowing economy, uncertainty in Europe as a result of Brexit, and caution ahead of the upcoming US presidential election.
AIB to London
Eyes were raised in the Dublin market last December, when Noonan said he intends to have AIB’s primary listing in London when the Government starts selling down its stake in the bailed-out bank. Somers is careful with her words here.
“I think that AIB, as an Irish company, will be naturally attractive to Irish investors, European investors, US investors – and also to UK investors. The Irish Stock Exchange is the conduit to the first three. The London Stock Exchange arguably is a conduit to the last,” she said.
“I don’t understand any logic as to why you would choose to define a listing relationship that is not completely aligned to where you want your investor base to be.”
Was Somers surprised by Noonan’s comments?
“I think this is an evolving process for AIB. We believe that the Irish Stock Exchange presents a compelling proposition for them to access the distribution that they need.”
After two abortive takeover attempts by Deutsche Börse in the past 16 years, the London exchange’s plans to finally merge with the German market operator leaves the Irish exchange in an increasingly lonely position as consolidation continues apace in the industry.
“There’s no ideology here [in remaining independent], but being bought is not a strategy,” Somers said. “Being bought in order to be able to do something you can’t do on your own is a strategy.”
For example, she said Dublin has been able to position itself as the leading exchange globally, according to the World Federation of Exchanges, for the listing of bonds and investment funds, on its own.
“I’ve yet to see compelling reasons as to where [the Irish Stock Exchange] would fit within a wider group,” she said, “and how there wouldn’t be this sucking force away from Ireland and into the wider group. That has been the larger experience of smaller exchanges in the consolidation agenda to date.”
