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Saudi Aramco Battle Intensifies With Fresh U.K. Opposition

One of the U.K.’s largest business groups has aired concerns over the FCA’s proposal for new listing rules for foreign state-owned companies.

  • Joe McGrath

One of the largest business groups in Britain has waded into the battle over whether the U.K.’s listing rules should be eased for state-owned companies such as Saudi Aramco.

The Institute of Directors, whose 30,000 business leaders include executives at FTSE 100 companies, objects to less stringent requirements to list on the London Stock Exchange because weaker standards may lead to governance problems, according to a report released by the group Wednesday and submitted last month to the Financial Conduct Authority. It was a response to the U.K. regulator’s July proposal to allow companies owned by foreign states to list on the exchange under a new category with criteria that are easier to meet.

Royal London Asset Management’s corporate governance manager, Ashley Hamilton Claxton, said the investment firm is “broadly supportive” of the position taken by the Institute of Directors, sharing its concerns and recommendations. Asset managers, including Hermes Investment Management, Schroders and Aviva, previously voiced their opposition to the FCA’s proposal due to concern that relaxing the rules to accommodate foreign state-controlled businesses would come at shareholders’ expense.

“A new listing category for sovereign-owned companies is a dangerous precedent, allowing companies like Aramco and other state-owned firms to access London’s capital markets without having to play by its rules,” Royal London Asset Management’s Hamilton Claxton said in an email. “Bending the listing rules to accommodate the peculiarities of one large and very lucrative listing could open the floodgates and devalue everything the London market stands for.”

She added that London’s position as a global leader when the U.K departs the European Union hinged on its integrity and not the “desire to do deals whatever the consequences.”

The London Stock Exchange and the FCA declined to comment on the Institute of Directors’ concerns. Aramco, Saudi Arabia’s state-owned oil company, did not respond to a request for comment.

Many investors have viewed the FCA’s plan to ease rules as a ploy to win a London listing for Saudi state-owned oil company Saudi Aramco. FCA chief executive Andrew Bailey said in last month’s announcement of the regulator’s proposal that sovereign owners were “different from private sector individuals or companies” and listing requirements should be refined accordingly.

[II Deep Dive: Inside the Fight Over Saudi Aramco]

In its report, the Institute of Directors suggested that rules for companies with a sovereign-controlled shareholder “be strengthened rather than weakened.” The group cited guidelines issued in 2015 by the Organization for Economic Cooperation and Development for corporate governance of state-owned enterprises, which warn that sovereign-owned businesses have the potential for “undue hands-on and politically-motivated ownership interference.” 

The report says that OECD guidelines also caution that a sovereign shareholder is in a “strong position to assert its interests at the expense of other shareholders or stakeholders, particularly minority shareholders.”

The Institute of Directors recommends that the appointment of independent directors be ratified by a binding vote of independent shareholders.

There are wider implications for the FCA than just Saudi Arabia’s Aramco.

Samruk-Kazyna, Kazakhstan’s $78 billion sovereign development fund, is another group closely watching developments in London. The fund is in the preliminary stage of assessing both the readiness of companies it owns for initial public offerings and where to do them, according to Dauren Tasmagambetov, head of privatization and asset restructuring at Samruk-Kazyna.

“Any developments in the listing rules will be closely studied by us together with our consultants,” he said in an email. “Only after this process will we settle on a location.”

The Institute of Directors is calling on the FCA to reconsider plans laid out in its consultation paper to waive rules for sovereign-controlled companies while at the same time acknowledging the importance of attracting leading global businesses to list in London.

“Good corporate governance serves to enhance business performance, protect investors and maintain the reputation of UK Plc,” Stephen Martin, director general of the Institute of Directors, said in a statement on its report. “We do not believe the proposals in the consultation paper seek to strengthen these objectives.”