The UK’s financial regulator is sifting through reams of feedback from investors about a proposed new category of stock exchange listing that is aimed at accommodating international companies that cannot meet existing standards, particularly Saudi Aramco.
The regulator has no clear indication at this point whether investment institutions – including insurance companies and pension funds, as well as individuals – are mostly for or against the idea, which was originally put forward by the UK financial regulator, the Financial Conduct Authority (FCA) in a circular in February, according to officials involved in the process.
Investors who have spoken publicly in recent weeks have expressed reservations about relaxing investor protection rules to accommodate big foreign family or government-owned enterprises.
The Investment Association (IA), one of the UK’s largest investment lobbying bodies, representing 200 asset management firms, with combined assets of £5.7 trillion (Dh26.6tn), remains firmly against changes to the existing rules.
The Aramco IPO proposal is for up to 5 per cent of the company to be listed, and its sheer size, and its role at the heart of Saudi Arabia’s economy and power structure, mean it would be hard-pressed to meet governance standards.
“IA members believe that 25 per cent should be the minimum free float level for any premium listed company in the UK, and that this should be preserved in all cases to protect the integrity and standard of the UK premium market – Saudi Aramco is no exception,” said Galina Dimitrova, the IA’s director of capital markets, in a statement issued yesterday.
This echoes the view of one of the IA’s leading members, Hermes Investment Management, headed by Jerusalem-born Palestinian Saker Nusseibeh, which took a similar position earlier this month.
“We believe that the governance protections provided by the premium listing standard help maintain very necessary protections for institutional investors and the ordinary people for which they work,” said Tim Goodman, director of Hermes’ corporate engagement unit. “We do not believe that a new listing standard to accommodate the [initial public offering, or IPO] of Saudi Aramco would be desirable for investors.”
The FCA, which reports to the UK Parliament’s Treasury Select Committee but is vocal about its political independence, has been frustrated by misleading talk amid the excitement to win for London the lucrative role of primary foreign listing for the IPO, according to the official.
The London Stock Exchange (LSE), a private company run by chief executive Xavier Rolet, a former investment banker, has been as keen as any of the advisers to find a way to accommodate Aramco.
But the LSE’s rules are dictated by the FCA framework, which determines rules for a “premium” listing, including a 25 per cent float and UK governance standards built up over decades, and a “standard” listing requiring less stringent but still onerous European Union standards.
The FCA’s February circular recognised that companies had been reducing secondary stock exchange listings, a long-term trend that has hit the LSE and other exchanges, which has been driven by factors including easier investor access to primary exchanges, as well as the cost and burden of meeting multi-jurisdiction regulations.
The FCA’s proposal for a new international category included a requirement to produce three years of audited accounts, as well as meeting the “premium” governance rules on a “comply or explain” basis.
The official said the FCA may – or may not – issue a “feedback statement” to indicate what the tenor of the responses has been, although there is no timetable. That might be followed by a consultation paper.
The process for Saudi officials in researching the potential IPO – a key policy plank for the newly appointed Crown Prince Mohammed bin Salman – has proved to be frustrating and drawn out.
The kingdom’s US legal advisers for the process, White & Case, last month advised against a listing on the New York Stock Exchange, which with a market capitalisation of nearly US$20tn is the largest in the world and was the Saudis’ first choice.
The LSE trails the Nasdaq as the world’s third largest exchange, with a market capitalisation less than a quarter that of the NYSE’s.
Aramco officials declined to comment. They have previously said that only the local Tadawul stock exchange has been decided upon.
amcauley@thenational.ae
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