UK financial watchdog proposes new rules to bring Saudi Aramco IPO to London

By James Henderson
The Financial Conduct Authority (FCA) is pressing ahead with plans to change the current laws to allow Saudi Aramco to choose London to host...

The Financial Conduct Authority (FCA) is pressing ahead with plans to change the current laws to allow Saudi Aramco to choose London to host its Initial Public Offering (IPO), which has been tipped to smash all previous records.

The world’s leading stock exchanges are vying for the right to hold the IPO, which analysts have said could raise as much as $2 trillion, a the energy giant looks to sell off 5% of its assets to boost its coffers that have been hit by more than two years of stubbornly low oil prices.

Under the current rules, companies must sell at least 25% of their shares to gain a ‘premium’ status, far below that being sold by Aramco.

But the City watchdog has launched a consultation on proposals to create a new category within its premium listing regime to cater for companies controlled by a shareholder that is a sovereign country.

If passed, the new rules would allow London Stock Exchange to host the ‘IPO of the Millennium’.

The proposal will address companies controlled by a shareholder that is a sovereign country, as is the case with Saudi Aramco, which is wholly owned by the Saudi’s powers-that-be.

Andrew Bailey, FCA Chief Executive, said: “Regulatory protections for investors lie at the core of the listing regime. However, it is important that these protections remain well-targeted. 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.

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“Sovereign owners are different from private sector individuals or companies – 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.”

The plans are bound to cause controversy and leading figures in the finance world have already warned against such a move, as even at 5% the value of the shares would mean that mean the stock would automatically become a significant part of many passive equity funds. In June, Ashley Hamilton Claxton, Corporate Governance Manager, at Royal London, said that any Aramco IPO “must play by the rules”.

“Any attempt to bend the listing rules in order to facilitate the IPO of Saudi Aramco is highly inappropriate and flagrantly ignores the principles which the UK’s listing rules were designed to defend.

“While the listing would be a prize asset on the exchange due to the sheer size of the firm, the attempt to list just 5 percent of the total share capital flies in the face of what is acceptable.”

Hamilton added that Royal London would be lobbying strongly against any concessions being granted should there be a formal attempt to IPO Aramco in the UK.

The FCA has asked for responses to its consultation by 13 October, and has indicated that it will look to publish responses before the end of the year.

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