The U.K.s Financial Conduct Authority unveiled a
proposal on Thursday to allow foreign sovereign-owned companies
to list on the London Stock Exchange under a new category, a
move investors say is a ploy to win a London listing for Saudi
state-owned oil company Saudi Aramco and one that will
erode governance standards and lower shareholder
The FCA has proposed a new category within its premium
listing regime to cater for companies controlled by a
shareholder that is a sovereign country, according to the
announcement. The proposal aims to enable companies which
may the subject of major privatisation transactions to choose
the higher standards of premium listing, rather than standard
Premium listings require companies to meet strict corporate
governance standards, according to a Financial Times report,
which notes that standard listings are off-putting to many
investors. The proposal would create a new premium listing
category that relaxes these standards.
The regulator unveiled the proposal over the objections of
investors urging it not to bend the rules so that Aramco could
list part of its business in London. Despite this, FCA chief executive
Andrew Bailey said in the announcement that sovereign owners
were different from private sector individuals or
companies and that the listing regime should be refined
Refining the listing regime in this way would make UK
markets more accessible whilst ensuring that the protections
afford by our premium listing regime are focused and
proportionate, he said in the statement.
But market investors are crying foul.
It looks like the FCA is consulting on amending the
existing listing rules to accommodate the peculiarities of one
company, Ashley Hamilton-Claxton, corporate governance
manager at Royal London Asset Management, tells
The firm has previously warned that any change to the
listing rules to accommodate Saudi Aramco could leave many
pension funds holding Aramco shares without the governance
protections usually available to U.K. investors.
If the proposals in this consultation document are
implemented, it will be bad news for London and will reverse
the progress we have made in recent years to uphold strong
governance and protect minority shareholders,
Hamilton-Claxton says, adding that the listing rules should
apply for any premium listing, regardless of whether the
controlling investor is a private individual, a consortium, or
a sovereign state.
Aviva Investors head of investment stewardship, Mirza
Baig, echoes Hamilton-Claxtons concerns. Baig says the
FCAs proposals are indicative of a wider global trend to
attract large IPOs.
We are not supportive of the dilution of listing
standards to accommodate foreign issuers, he says.
This unfortunately is a growing trend around the world as
exchanges compete for large IPOs.
Baig calls the trend a race to the bottom amongst
exchanges which he thinks could be dangerous,
as it would erode investor protections.
These concerns would be heightened if these companies were
to be included in any of the major investment benchmark
indexes, such as the FTSE 100, as index trackers and
exchange-traded funds would have to buy the constituents of
these indices, regardless of corporate governance issues.
A London Stock Exchange spokesman, speaking on Thursday
before the FCAs announcement, said that currently,
companies outside of the U.K. need to list at least 50 per cent
of their free float shares in London to be eligible for
inclusion in the FTSE indexes, while the requirement for
U.K.-domiciled companies is 25 per cent. However, a company
could still float in London even if it doesnt list 25 per
cent, the spokesman said, although it wouldnt be
automatically considered for inclusion in the indexes.
Still, this would be a tough sell to fund managers, whose
trade association today issued a statement on the FCAs
announcement. Chris Cummings, chief executive officer of the
Investment Association, said the FCAs consultation on
removing key investor protections from the premium-listed
segment to accommodate sovereign-controlled companies would not
Investors believe a premium listed segment without
these investor protections is not a premium segment and will
not provide the protections that investors expect, he
said in the statement.
However, Cummings added that investors recognize that the
U.K. needs to maintain a good flow of business coming to list
on the London market and should offer a competitive market
It is not the first time that a regulator has attempted to
alter the rules to accommodate a large IPO listing. Earlier
this year, shares in the parent company of Snapchat were
admitted to the New York Stock Exchange with zero voting
The FCA has asked for responses to its proposals as part of
a consultation period ending in October. Saudi Aramco is
seeking to list 5 percent of the company, with plans to list in