The UK’s top financial regulator yesterday sought to pave the way for Saudi Arabia’s state oil company to make its share-sale debut in London.
The Financial Conduct Authority proposed new more lax rules that would accommodate a listing on the London Stock Exchange (LSE) of Saudi Aramco’s initial public offering of shares, which may come as early as next year. Aramco plans to list p to 5 per cent of its shares on Saudi Arabia’s domestic stock exchange, the Tadawul, and on at least one major foreign exchange.
The LSE has been courting the Saudi leadership to be the exchange of choice, getting support from the UK prime minister Theresa May and her government.
The FCA, the umbrella organisation overseeing the UK Listing Authority, which is the direct regulator of LSE, first floated the idea of a new type of listing in February and its officials have been sifting through responses from various interested parties over the past few months.
The FCA's decision to propose the new rules comes even as a number of bodies representing the largest investment institutions in Britain have publicly voiced their opposition to relaxing investor protection rules to accommodate sovereign share-sellers such as Saudi Arabia.
“Regulatory protections for investors lie at the core of the listing regime,” Andrew Bailey, the FCA chief executive, said when announcing the new proposal. “However, it is important that these protections remain well-targeted [and] 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.”
The main proposed rule change is that the sovereign controlling shareholder would not be considered a related party, which means its interaction with the company will not require approval of other shareholders.
Mr Bailey continued: “Sovereign owners are different from private sector individuals or companies – both in their motivations and in their nature. Investors have long recognised this and capital markets are well adapted to assess the treatment of other investors by sovereign countries.”
Under existing rules, a “premium” listing requires a minimum 25 per cent float and must abide by UK governance standards built up over decades, while a “standard” listing requires less stringent but still onerous European Union standards.
Even with the FCA’s proposed change, Aramco would have a long way to go to meet the governance standard required, including producing at least three previous years of audited accounts. The state oil company recently produced its annual review which contained no financial information of any kind.
Among those opposed to the rule changes is the Investment Association (IA), one of the UK’s largest investor lobbying bodies, representing 200 asset management firms, with combined assets of £5.7 trillion (Dh26.6tn).
Galina Dimitrova, the IA’s director of capital markets, has said its 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”.
Others who have voiced concern include Saker Nusseibeh, the head of Hermes Investment Management.