UK authority seeks to change rules to lure Aramco to list in London

July 17, 2017

The Financial Conduct Authority, the UK securities regulator, is developing a plan that would make it easier for state-owned companies to list on the London Stock Exchange, it said on Thursday.

The move is designed to lure Saudi Aramco to list on the London Stock Exchange. The company is planning to list up to 5% of its shares on several stock exchanges in the second half of 2018, in the largest ever initial public offering (IPO) of shares. London, along with other global exchanges, is lobbying to win the IPO. Three investment banks—JPMorgan Chase, Morgan Stanley, and HSBC—have been named as the lead underwriters for the IPO.

The regulator has been looking at the possibility of creating a category of listing that might allow Aramco to float in the United Kingdom, despite not meeting the rule that 25% of a premium-listed company’s shares should be freely available. Aramco’s IPO could raise $100 billion. This is based on Aramco’s estimated value of $2 trillion.

The FCA has launched a consultation on proposals to create a new category within its premium listing regime to cater for companies controlled by a shareholder that is a sovereign country. In February, the FCA proposed a new international category that would escape the stigma associated with a standard listing but not be subject to compliance with the rules on governance, transparency, and free float required of companies with a premium listing. However, institutional investors have objected to any reform that would place Aramco in leading indices and so require passive funds automatically to buy its shares. They are also concerned about any dilution of standards in London. Key Saudi officials are understood to be more concerned that any listing should underline Aramco’s status as a high-quality business and are less worried about whether it is included in any index.

Andrew Bailey, chief executive of the FCA, said, “Regulatory protections for investors lie at the core of the listing regime. However, it is important that these protections remain well-targeted. Refining the listing regime in this way would make UK markets more accessible while ensuring that the protections afforded by our premium listing regime are focused and proportionate. Sovereign owners are different from private sector individuals or companies—both in their motivations and in their nature. Investors have long recognized this and capital markets are well adapted to assess the treatment of other investors by sovereign countries.”

The thrust of the proposal is that the controlling shareholder, in this case the Kingdom of Saudi Arabia, would not be seen as a ‘related party’. This would mean it would not have to seek shareholder approval before embarking on big asset purchases or disposals.

The UK government and key business groups have supported the FCA’s proposed changes as cementing and confirming London’s continued importance as a financial center after the UK’s planned exit from the European Union. However, the porposals have been criticized by several leading UK investment institutions. The investor rights group, ShareAction, for example, said the changes risked repeating the mistakes of the past, inlcuding the time, four years ago, when the London Stock Exchange was forced to tighten up its controls following prominent corporate governance failures at the foreign-owned natural resources groups Bumi Resources and ENRC.

Aramco has also considered listing its shares on the New York Stock Exchange, but legal advisors have warned it that a US listing could expose it to the risk of being more easily sued for damages as a proxy for the Saudi regime by families of victims of the 9/11 attacks.

By Natasha Alperowicz

Source: Chemical Week