The UK is certainly pulling out all the stops to attract Saudi Aramco to float on the London Stock Exchange.
The state-owned oil producer is planning a partial flotation next year expected to value it at more than $1tn.
The primary listing will be on the Tadawul, Saudi Arabia’s own stock exchange, while London, New York, Tokyo, Singapore and Hong Kong are vying for the right to host the secondary listing.
The key prize that a London listing brings is the possibility of FTSE-100 membership, should it be sought. This would guarantee buyers for Saudi Aramco’s shares in the form of tracker funds that seek to replicate the performance of the index.
The only problem is that, to qualify for the Footsie, companies need a so-called ‘premium’ listing – which requires a quarter of their shares to be publicly tradable on the open market.
As the Saudi government is only planning to float a 5% stake in Saudi Aramco, the company would not meet that criteria.
So today, the Financial Conduct Authority has launched a consultation on a possible change to the listing rules .
It proposes to create a new category for sovereign-owned companies, such as Saudi Aramco, that are looking to list some of their shares. Such companies would be allowed to seek a premium listing.
The creation of a new category for sovereign-owned companies is an important one because such companies would be distinct from other firms in a similar position that might, for example, be controlled by a family, an oligarch or another private entity.
Andrew Bailey, the FCA’s chief executive, explained: “Sovereign owners are different from private sector individuals – 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.”
But that may not be enough to satisfy many City fund managers – some of whom are unlikely to welcome this decision.
The current rules are in place to ensure companies enjoying a premium listing are not dominated by one shareholder in a way that, potentially, could be to the detriment of others.
A number of City institutions, such as Royal London Asset Management, have said they will campaign against any weakening of the rules and the Investment Association, the industry body for fund managers, said last month the rules should apply “irrespective of the size of the company being listed” and “should be preserved at all costs to protect the integrity and standard of the UK premium listing”.
Why are fund managers so unhappy? Simply because, in recent years, there have been a number of companies admitted to the London market, controlled by foreign oligarchs, that have suffered appalling failures of corporate governance.
They include Eurasian Natural Resources Corporation (ENRC), a Kazakhstan-based mining company that for a while was a member of the FTSE-100, and Bumi, an Indonesian-base coal miner. In both cases, shareholders lost their shirts.
The situation is a tricky one. The UK needs to show to the outside world that it is open for business following the decision to leave the EU.
Theresa May pressed the London Stock Exchange’s case with the Saudi oil minister and Aramco chairman, Khalid al-Falih, when she visited the Kingdom in April. Accompanying her on the visit was Xavier Rolet, the LSE chief executive.
Attracting the world’s biggest ever stock market flotation to London would also convey a considerable amount of prestige – not to mention substantial fees for legions of City advisers. Weighed against that is the danger that the premium listing brand could be damaged.
So the FCA’s proposal looks like a pragmatic compromise. But it is bending the rules to the absolute limit – and is likely to get any number of backs up in the Square Mile.
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