London relaxes IPO rules as it eyes Aramco listing

Andrew Bailey, FCA chief executive arrives to speak at a Treasury Select Committee hearing into the disruption at TSB Banking Group in London. The FCA has created a new premium listing option to incentivise Aramco to list on the London Exchange next year. Photographer: Chris J. Ratcliffe/BloombergShow less

The UK will press ahead with plans to soften its listing regime to attract state-controlled companies such as Saudi Aramco, drawing criticism from lobby groups for investors and businesses.

The Financial Conduct Authority will introduce a new category of “premium listing” rules for commercial companies controlled by a country. The new regime won’t require prior shareholder approval for related-party transactions, the FCA said, meaning a government can buy and sell assets held by the firm without foreign investors getting a say.

“We continue to oppose the inclusion of companies in this new segment in all major equity indices as this would force UK savers to invest in these companies despite the loss of valuable and hard-won investor protections,” said Chris Cummings, chief executive officer of the Investment Association, whose members manage more than 6.9 trillion pounds ($9.2 trillion.)

The rule changes, effective July 1, were widely seen as having an eye to the upcoming IPO for Saudi Aramco, which could be the world’s largest. UK authorities want to make sure London is selected alongside Riyadh for the sale, which Saudi officials have said they hope will raise $100 billion.

The new category won’t require prior approval from shareholders for related-party transactions but will insist on “timely disclosure,” while the election of independent directors will be subject to separate shareholder approval.

“The Institute of Directors is deeply disappointed that the FCA has decided to press ahead” with the new listing category, the lobby group’s director general, Stephen Martin, said. “The FCA not only risks the market’s reputation with investors but the UK’s global reputation as a leader in best practice and good governance.”

The Saudi Aramco initial public offering, originally planned for the second half of this year, will now most likely happen in 2019, the kingdom’s oil minister said last month. Billed as a once-in-a-generation event for financial markets, Saudi officials hope to sell a 5 per cent stake in the world’s largest oil exporter, valuing the company at more than $2 trillion.

While this would dwarf the $25 billion raised by Chinese retailer Alibaba Group Holding in 2014, others have balked at the valuation and suggested a figure much closer to $1 trillion, based on accounts revealed earlier this year by Bloomberg News.

The premium-listing regime will allow boards of directors at sovereign firms to overrule votes by independent shareholders after a 90-day cooling-off period. Both the IoD and the Investment Association oppose that. Other changes mean that state-controlled companies will be able to list their shares without a formal agreement between the business and its controlling shareholder.

“The relationship between a sovereign-controlled company and the state that owns it is likely to be different from the relationship a company would have with a private controlling shareholder,” FCA chief executive Andrew Bailey said in Friday’s statement. “In addition, more information is available on sovereign states than on any other type of controlling shareholder.”

Companies will also be able to use depository receipts rather than straight equity, as long as holders have the same rights as investors in the shares.