Monday, 17 December, 2018

FCA Entices Saudi Aramco With New LSE Listing Category

The cost of human rights? UK may relax rules to lure Saudi’s Aramco to London Stock Exchange Amir Levy Reuters
Priscilla Morrison | 10 June, 2018, 16:45

Aramco has yet to decide when and where it plans to float, causing a scramble in countries across the world to attract the extremely lucrative venture.

The Financial Conduct Authority's proposal past year led to suggestions the British government had influenced the watchdog to try to secure the Saudi energy company's listing.

Saudi Arabia is expected to float up to 5 percent of Aramco in Riyadh and an worldwide venue such as London or NY in what is expected to be the biggest ever IPO and would boost the reputation of its chosen listing venue. We would encourage companies considering listing in this new category to voluntarily adopt higher standards to reassure investors that their interests will be protected.

The FCA said it was pressing ahead, despite criticism of its plans by major institutional investors when they were first circulated in July a year ago.

"By allocating this term to organisations which are not obliged to meet key requirements in relation to minority shareholder protections and independent directors, a central tenet of United Kingdom corporate governance, 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 FCA said it had made some changes following feedback, including the requirement that the election of independent directors be subject to approval from independent shareholders.

"The FCA fails to provide a convincing justification for why listing rules relating to premium category issuers should be waived or removed in cases where the issuer has a controlling sovereign shareholder".

FILE PHOTO: Andrew Bailey, Chief Executive Officer of the Financial Conduct Authority, speaks during a "Reuters Newsmaker" interview at the Reuters offices in London, Britain, July 6, 2017.

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The absence of an advance sponsor "fair and reasonable" opinion and prior shareholder approval requirements for related party transactions with the sovereign before these transactions are completed.

London's listing rules would usually require at least 25% of a company's shares to be traded, but the new category could allow a smaller float for sovereign-controlled companies, the FCA said.

The FCA said it received 36 responses to its consultation paper - half from institutional investors.

"The IoD reiterates its recommendation that the appointment of independent directors should be ratified by a binding vote of independent shareholders, as well as by the vote of the shareholder constituency as a whole".

"This decision has been made despite opposition from across the governance spectrum and without providing evidence as to the necessity for the reduction in standards", said IoD Director-General Stephen Martin.

"Although the proposal has often been linked with the possible Saudi Aramco IPO, the reality is this is much wider than that. But on the other hand, there is a serious point that any listing category which permits lower standards could be more risky - and weakens standards for the future", Laird said.

The creation of a new category within the premium listing regime recognises that 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.

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