The UK Financial Conduct Authority (FCA) said it had addressed investor concerns with clauses that relate to disclosure and the appointment of independent directors.
A Saudi Aramco listing in London would be huge boon for Britain’s financial services sector as it faces the threat of losing key occupiers to rival European financial centers in the run-up to Brexit next year.
The Kingdom aims to float as much as 5 percent of the national oil company in what has been billed as the world’s biggest-ever IPO. Riyadh and another international venue are expected to be chosen for the listing, with London and New York seen as potential venues.
The FCA first consulted on the new rules last July which drew opposition from some investors concerned about protecting shareholder rights.
The watchdog on Friday addressed some of those concerns by requiring the election of independent directors to be subject to separate approval by independent shareholders.
It also stated the need for timely disclosures on transactions between the sovereign and the issuer.
“These rules mean when a sovereign-controlled company lists here, investors can benefit from the protections offered by a premium listing. This raises standards,” said FCA CEO Andrew Bailey.
“The creation of a new category within the premium listing regime recognizes that the relationship between a sovereign-controlled company and the state that owns it is likely to be different from the relationship a company would have with a private controlling shareholder. In addition, more information is available on sovereign states than on any other type of controlling shareholder.”
But despite these latest amendments, the rules came under fire from British business chiefs and fund managers worried about shareholder protection and corporate governance.
“The acid test for this new premium listing category will be whether companies meet the high standards expected by their investors. Savers must have confidence that a company is run for all shareholders,” said Chris Cummings, CEO of the UK-based Investment Association, in a statement to Arab News.
“Listing rules are a minimum, not a target. We would encourage companies considering listing in this new category to voluntarily adopt higher standards to reassure investors that their interests will be protected.
“We continue to oppose the inclusion of companies in this new segment in all major equity indices as this would force UK savers to invest in these companies despite the loss of valuable and hard-won investor protections.”
The FCA said it received 36 responses to its consultation paper — half from institutional investors. It acknowledges that larger investors were generally against its plans. Some were concerned that labeling the new category as “premium” would increase the likelihood of inappropriate companies achieving UK index inclusion — effectively compelling passive investors to buy their stock.
A premium listing in London would usually demand a float of at least 25 percent of a company’s shares, but the new category could support small floats according to the FCA.
Saudi Aramco plans to list about 5 percent of its shares.
The Institute of Directors (IoD) said it was “deeply disappointed” that the FCA had decided to press ahead with a plan that reduces key corporate government requirements.
“This decision has been made despite opposition from across the governance spectrum and without providing evidence as to the necessity for the reduction in standards,” said IoD Director-General Stephen Martin.
“While we recognize that the regulator has taken on board some of the IoD’s concerns in relation to the election of independent directors, they do not go far enough. The IoD reiterates its recommendation that the appointment of independent directors should be ratified by a binding vote of independent shareholders, as well as by the vote of the shareholder constituency as a whole.”
The Saudi Aramco IPO is expected to take place next year.
“The timing, I think, will depend on the readiness of the market, rather than the readiness of the company or the readiness of Saudi Arabia,” chairman Khalid Al-Falih said at the St. Petersburg International Economic Forum in Russia last month.
“We are ready, the company essentially has ticked all the boxes,” he said. “We’re simply waiting for a market readiness for the IPO. Most likely it will be in 2019, but we will not know until the announcement has been made.”
