As Aramco decides where to sell shares, FCA proposes controversial changes to pave way for LSE listing

The City regulator is proposing to water down stock market rules in a move regarded as an attempt to attract the world’s biggest ever flotation – of Saudi Aramco, the Gulf kingdom’s state oil company – to London.

The proposals by the Financial Conduct Authority come as Aramco weighs up which financial centre to pick for the sale of 5% of its shares. The company could be valued at $2tn – a huge price tag that would also generate hundreds of millions of dollars in fees for investment bankers, lawyers and other professional firms involved in stock market flotations.

However, investors immediately warned that the FCA’s proposal to create a new category for firms controlled by a shareholder that is a sovereign country could damage London’s reputation for protecting shareholders in companies that have dominant owners.

While its consultation document did not name any companies, the FCA’s proposal was widely regarded as being framed to address some of problems that Saudi Aramco faces in seeking a listing on the London Stock Exchange.



The UK is keen to lure the Saudi company. The prime minister, Theresa May, and Xavier Rolet, the head of the LSE, visited Riyadh in April to meet Aramco’s chief executive Khalid al-Falih, who is also the kingdom’s energy minister.



The FCA’s proposals would allow state-owned companies to qualify for a premium listing – which has more onerous corporate governance rules – without having to meet two criteria. One relates to how the company and the controlling shareholder conduct deals with each other, and the second allows investors a vote on independent directors.

Chris Cummings, the chief executive of the Investment Association, which represents the City’s biggest fund managers, said: “Investors believe a premium listed segment without these investor protections is not a premium segment and will not provide the protections that investors expect.”

But Andrew Bailey, the chief executive of the FCA, justified the changes on the basis that sovereign owners behave differently to other sorts of companies. “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,” Bailey said.

This explanation did not convince everyone. Nicholas Holmes, the equity capital markets partner at law firm Ashurst, said that while sovereign owners may have different motivations, this is did not reduce the need for proper scrutiny. “The risk is a dilution of the premium listing brand,” said Holmes.

Ashley Hamilton Claxton, the corporate governance manager at Royal London Asset Management, said: “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,” she added.

The proposals are being made at a time when London is keen to promote its status as a leading financial centre in the wake of the Brexit vote.

Miles Celic, the chief executive of lobby group TheCityUK, said: “It is positive that our regulator takes an open-minded approach to regulatory change. This will become ever more critical as we come closer to Brexit and beyond.”



A spokesperson for LSE also welcomed the changes: “We support initiatives that enable UK markets to function well and in an orderly and internationally competitive manner, with a high level of investor protection, meeting the demands of both issuers and global investors for a range of options to realise their capital raising and investment needs”.

Despite its size, Saudi Aramco would not quality for an entry in the FTSE 100 stock market index, which would require major City investors to buy the shares to enable them to run their tracker funds.

Chris Woods, a managing director at FTSE Russell, said: “The index ground rules include the requirement to have a premium listing in London, an assigned nationality of UK, and minimum free floats of 25% for UK incorporated companies and 50% for non-UK incorporated companies. All these requirements will remain unchanged.”