The day the City bent the rules to woo the Saudis
CITY regulators are planning to rip up strict stock market rules to allow Saudi Aramco – the world’s biggest company – to list its shares in London.
Saudi Arabia wants to raise £75bn by selling 5pc of the state-controlled oil giant to investors, valuing the company at £1.5trillion in the biggest stock market flotation of all time.
But rules in London dictate firms must offload at least 25pc of their shares to gain ‘premium’ status on the stock market – something the Saudis want.
To overcome the problem, and lure Aramco to London rather than New York, the Financial Conduct Authority is proposing to create a ‘new premium listing category for sovereign-controlled companies’.
The move sparked a backlash in the Square Mile as critics worried about corporate governance issues at Aramco, the risk to investors who buy the shares and damage to the City’s reputation.
The FCA proposals come just months after London Stock Exchange chief executive Xavier Rolet joined Theresa May on a charm offensive in Riyadh in a bid to woo Saudi ministers. The Prime Minister is understood to have hired legendary banker and former Lazard chairman Ken Costa to advise on the deal.
Bankers, lawyers and other City advisers can look forward to a fees bonanza if Aramco picks London over New York.
But institutional investor Royal London Asset Management said special concessions for Aramco would be ‘highly inappropriate’. It warned that while the listing would bring a ‘prize asset’ to London, bending the rules to accommodate it ‘flies in the face of what is acceptable’.
Ashley Hamilton Claxton, corporate governance manager at Royal London, said the FCA’s plans were ‘bad news’ for the City. Garry White, chief investment commentator at Charles Stanley, said: ‘We should not make any exceptions for oligarchs or state agencies. In addition to the Saudi government, the main beneficiaries of this float, if it happens, will be advisers in the City – and that’s why they are keen.
‘I worry about private shareholders and pensioners investing in a company where the corporate governance is opaque.’
He also cast doubt over whether the listing will go ahead given the Saudis’ own valuation. He said: ‘It looks ambitious.’
Aramco is the world’s biggest oil producer and pumps around one in nine barrels of crude globally, but its value has come under scrutiny as it is based on estimates of oil reserves while the company has never released financial statements.
The Saudi royal family is trying to make the country less dependent on oil revenue and is planning to float Aramco next year. FCA chief executive Andrew Bailey defended the proposals and said sovereign owners were ‘different’ to private sector individuals or companies, a fact ‘long recognised’ by investors.
And he added: ‘Refining the listing regime in this way would make UK markets more accessible – while ensuring that the protections afforded by our premium listing regime are focused and proportionate.’
The LSE said: ‘We support initi- atives that enable UK markets to function well. Providing discretionary access for investors to a broad range of UK and global companies is fundamental to London’s role as the most international financial centre.’