Monday, 26 August, 2019

Controversial rules for Aramco London listing approved

The IPO changes had proved controversial The proposed IPO changes have proved controversial
Ginger Lawrence | 10 June, 2018, 16:45

The Financial Conduct Authority (FCA) said on Friday that it would create a new category from July 1 that will allow sovereign-controlled companies to sidestep some of the requirements for premium listings.

Saudi Arabia is expected to float up to 5 percent of Aramco in Riyadh and an global 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. It is expected to be the largest IPO in history and would be a huge boon to the recipient city.

When the FCA announced last July it was looking to amend existing rules, it was accused of lowering standards to entice Saudi Aramco, the $2trn Saudi Arabian oil company, to list on the London Stock Exchange.

"By allocating [a premium listing] 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".

"In July past year, the Financial Conduct Authority consulted on proposals aimed at encouraging such companies to choose the higher standards of premium listing, rather than standard listing", the watchdog said in a statement on Friday. "This raises standards. This package recognises that the previous regime did not always work for these companies or their investors", Bailey said.

Similarly, Ashley Hamilton Claxton, head of responsible investment at Royal London Asset Management, said the FCA's the new rules "fall short of the high governance standards that investors expect in the UK".

The FCA said it will not require such shareholder approval because "the number of transactions makes this a disproportionately onerous requirement".

While there may be relatively few listed commercial companies with sovereign controlling shareholders, the listing regime should have appropriate ways of accommodating such companies, for example companies on the path to privatisation.

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But the FCA's plans have met resistance from industry groups including the Institue of Directors (IoD).

But there will not be a requirement for a controlling shareholder agreement, and no need for an advance sponsor opinion or advance approval by independent shareholders of certain transactions with the sovereign or its associates.

"We would encourage companies considering listing in this new category to voluntarily adopt higher standards to reassure investors that their interests will be protected".

Martin acknowledged the changes, but said they didn't go far enough, and the IoD reiterated its recommendation that the appointment of independent directors be ratified by a binding vote of independent shareholders, as well as by the vote of the shareholder constituency as a whole. In effect this would mean timely disclosures on transactions between the sovereign and the issuer.

The logo of Saudi Aramco is seen at Aramco headquarters in Dhahran, Saudi Arabia May 23, 2018.

However, the Institute of Directors said it was "deeply disappointed", calling the move "a reduction in standards".

That may open the door to companies such as Russia's state-controlled Rosneft PJSC and Gazprom PJSC, which already have secondary listings of depository receipts in London and would be eligible to convert to the new category, according to Bloomberg Intelligence.