New London listing rules open door to Saudi Aramco
Sovereign-owned companies looking to privatise will have premium category on LSE
The UK’s financial watchdog is making it easier for state-owned companies to list their shares in what will be a boon for those lobbying for Saudi Arabia’s Aramco to choose London for its initial public offering.
The Financial Conduct Authority said on Thursday it is planning to create a new category for sovereign-owned companies that are looking to privatise. The move is part of broader plans by the FCA to reform equity and debt markets in an attempt to keep the UK open for business after Brexit.
The plans involve creating a new category within the “premium” listing rules for companies controlled by sovereign entities rather than by oligarchs or other private groups.
Saudi Arabia is seeking to sell 5 per cent of national oil company Saudi Aramco in what is set to become the world’s biggest flotation, with a valuation officials hope will reach $2tn and which would be a fee bonanza for the advisers working on the deal. Saudi Aramco is the world’s biggest oil producer, pumping roughly one in every nine barrels of crude globally.
The kingdom has narrowed its choice of venue for the IPO, scheduled for late 2018, to New York and London.
Theresa May, prime minister, and Xavier Rolet, head of the London Stock Exchange, both travelled to Saudi Arabia earlier this year in a lobbying effort.
The UK listing regime had to tighten controls in 2013 after a string of corporate governance failures in overseas-headquartered companies controlled by foreign tycoons, including ENRC and Bumi.
Both became cautionary tales about the danger bringing resource companies from emerging markets to the London market. A criminal investigation into ENRC, which crashed out of the FTSE four years ago amid allegations of corruption, is still ongoing by the UK’s Serious Fraud Office.
“Sovereign owners are different from private sector individuals or companies — both in their motivations and in their nature,” said Andrew Bailey, the FCA’s chief executive. “Investors have long recognised this and capital markets are well adapted to assess the treatment of other investors by sovereign countries.”
Since March, the FCA has been tasked by government with keeping the competitiveness of the UK’s financial markets in mind when forming policy — something both the FCA and the Bank of England previously argued against.
The FCA proposed on Thursday to not treat a sovereign shareholder as a related party, meaning it would not have to seek prior shareholder approval for a transaction between the state and the company, such as the purchase of other state owned assets, for instance.
Directors and officers of the company would still be treated as related parties under the proposals, however.
The regulator also proposes that the new sovereign segment of the premium listing regime would apply to depositary receipts. This would allow a state-backed company to have a primary listing in its domestic markets, and then achieve a premium UK listing through the sale of such secondary securities, providing that underlying voting rights are passed on to the UK investor.
The FCA also says that rules governing fair disclosure of inside information under the European market abuse regime would still apply.
Companies such as Saudi Aramco would still be under an obligation to show that they maintain an independent business, requiring the appointment of outside non-executive directors. The proposal also suggests that such independence may be compromised if the company seeking such a listing grants “security over its business in connection with the funding of the sovereign controlling shareholder”.
At present, overseas companies rarely seek a standard listing on the main market, which entails adherence to the rigorous governance standards required by UK listed companies.
Many international companies, including Russian energy group Gazprom, opt to be listed using global depositary receipts, which represent ownership in the underlying shares. This allows investors to trade in overseas companies on developed markets, but is relatively inaccessible to retail investors.