London’s market: open for business, or open for rent?
Opening the stock market to vast state-owned businesses appeals in post-Brexit world
Money talks. Opening the London stock market to vast state-owned businesses such as Aramco of Saudi Arabia — the world’s biggest oil company — appeals financially and politically in a post-Brexit world.
Now, the Financial Conduct Authority is bringing forward its consultation on introducing a new premium segment that would give such enterprises the cachet of a premium listing, while disabling some of the requirements that other premium-listed companies must adhere to.
The FCA nods to fears expressed by many of the market’s biggest investor groups that it would open the market once again to the kind of delinquent businesses that ravaged their portfolios only a few years ago.
Eurasian Natural Resources Company — which was owned and controlled by a tangle of Kazakh government interests and oligarchs — springs to mind.
The FCA says there is a difference between companies that are sovereign-owned and those controlled and owned by private sector entities. Andrew Bailey, the regulator’s chief executive, argues investors are grown up and, if given enough information, should be well able to work out what they are getting into.
“Capital markets are well adapted to assess the treatment of other investors by sovereign countries,” he says. They should be after their experiences at the hands of ENRC.
The London stock market can’t look back and nurse past hurts forever. However, the rules on controlling shareholders and related party transactions were refined in 2014 for very good reason: to protect minority shareholders. Crucially, they must approve related party transactions. The FCA seems shy about fettering the interaction between the state and state-owned enterprises in this way.
That is a poor rationale for setting a knockdown price for a premium listing. The fees that Aramco will pay for a London quote may put dollar signs in the eyes of the LSE and bankers. But it seems that taking the money leaves the UK market open to the claim that “open for business” actually means, in the words of one investor, “open for rent”.