In A Bid For Aramco Prize, Britain Floats New Sovereign IPO Rules

Just as the London Stock Exchange is trying to win the IPO of Saudi Arabian oil giant Saudi Aramco, a potentially huge but controversial prize, Britain has proposed a loosening of rules on stock market listings by state companies.

Even as exchanges around the world are vying to win the Aramco listing, which is expected to be the largest initial public offering (IPO) ever, a new listing category for companies controlled by sovereign states will be created by the new rules proposed by Britain’s financial watchdog.

But British fund managers, who have already expressed concerns about Aramco’s governance, are most likely to criticize the Financial Conduct Authority (FCA) proposals.

It was concerned that Aramco would be granted exemptions that could weaken the influence of minority shareholders, the British asset management body the Investment Association had said in May.

Reports on a new type of listing structure that would make it more attractive for Aramco to join the bourse by the London Stock Exchange Group was reported earlier in the media.

Following the Brexit vote and the anticipated divorce of the U.K. and the EU, the government and City of London are trying to keep Britain’s financial markets attractive to international investors and companies and the proposals come amidst such an environment.

Companies controlled by sovereign states will be exempt from certain requirements under a new “premium” stock market listing category that the FCA was proposing, it said on Thursday.

“Refining the listing regime in this way would make UK markets more accessible whilst ensuring that the protections afforded by our premium listing regime are focused and proportionate,” FCA chief executive Andrew Bailey said.

Without complying with certain rules on related party transactions and controlling shareholders, sovereign-controlled companies will be able to obtain a “premium” listing on the London Stock Exchange under the FCA’s proposals.

Just as several Gulf countries are considering listing part of their oil assets, the changes are likely to make Britain’s stock market more attractive to state-controlled companies. A part of their state oil businesses might also be floated by them, Oman and Abu Dhabi have also said, aside from Saudi Arabia.

A standard listing has to be taken by companies which do not meet Britain’s “premium” listing requirements at present. Since these have connotations of being second best, do not qualify for entry into most stock indices and have lower corporate governance requirements, these are seen as less attractive.

In order to ensure that transactions between the company and the controlling shareholder will be conducted at ‘arms length’ and on commercial terms, a shareholder that controls more than 30 percent of a company has to enter into a legally binding arrangement to qualify for a premium LSE listing at the moment.

And before entering into a deal with a ‘related party’ with a major shareholder, the listed company also has to obtain prior approval from independent shareholders.

It was legitimate to grant controlling sovereign owners exemption to these requirements because the FCA said it believed them tend to act differently from private ones.

“Sovereign owners tend to be different from private sector individuals or entities in both their motivations and their nature,” it said in its consultation paper.

We believe that investors and the market are sufficiently able to assess the additional risks arising from sovereign ownership”.

(Adapted from CNBC)

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Categories: Economy & Finance, Geopolitics, Strategy, Sustainability, Uncategorized

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