The debate over the proposed listing of a small proportion (5%) of Saudi Aramco on the LSE continues apace. The recent flurry of news on this topic highlights the difficulty that the UK Listing Authority (UKLA) is having with sticking to its time served rules and principles when a large reward is within reach of the City if only a few minor changes were to be made. The recent publication by the FCA of proposed changes to the listing rules to allow for sovereign owned companies to be Premium listed puts me in mind of Groucho Marx’s well known comment – “those are my principles and, if you don’t like them…well, I have others”
With Saudi Aramco reported to be worth as much as an estimated $2tn even a 5% share could be worth $100bn although more conservative estimates would suggest half of that. Think of all the fees to be earned by the denizens of the City if such a beast were to take up residence in London. Think of the cries of anguish if it were to end up in New York or Hong Kong. We can all resist everything except temptation.
The recently published FCA consultation document on this matter is entitled “Proposal to create a new premium listing category for sovereign controlled companies”. It proposes two important modifications to the normal rules which apply to other commercial premium listed entities:-
- the related party rules will operate on a modified basis: the sovereign controlling shareholder will not be considered a related party for the purposes of the UK Listing Rules
- the controlling shareholder rules will not apply to companies in the new category in respect of the sovereign controlling shareholder
Ironically, the UKLA tightened the listing rules on related parties and controlling shareholders in 2013 after various corporate governance failures in overseas companies controlled by foreign families and individuals – ENRC and Bumi amongst others. So they are now trying to draw a careful distinction between foreign families/individuals and sovereign governments as if to imply that one is more trustworthy than the other. Quite a delicate hair-splitting argument when one considers that Aramco is owned by Saudi Arabia which itself is controlled by the Al Saud family!
One important point to note is that these proposals will effectively create a new (and fourth) category of Premium listing so such companies can easily be identified by investors and avoided if required. It also means that such companies could be excluded from the usual market indices that the industry uses which will help to avoid any confusing distortions. This should also help tracker funds to avoid adding such companies to their holdings. I for one would support this approach if the new category is ever allowed. I would not wish to see trackers and ETF’s obliged to purchase Aramco shares.
The FCA says in its proposals :-
“We believe that investors and the market are sufficiently able to assess the additional risks arising from sovereign ownership. Those making decisions to invest in the securities of sovereign controlled issuers will wish to do so taking into account the nature of the sovereign owner. “
Or, in plain Latin – “Caveat Emptor”.
Or perhaps another way of putting it would be that the FCA are now relaxed about the prospect of sovereign governments riding roughshod over minority shareholder rights but nobody else is allowed to get away with it. Well, that’s OK then isn’t it?
The listing rules have been written for a reason – they protect the reputation of the LSE and ensure, as far as reasonably practicable, that ALL investors in the listed companies are treated fairly and transparently.
The LSE is respected around the world as a well-managed stock market with a reputation for probity and transparency (I exclude AIM from my comments to a certain extent discussed elsewhere on ShareSoc’s website!). A premium listing on London’s main market is the cherished ambition of many corporates with all the kudos it brings. So, will the LSE resist the temptation to put London’s status and brand at risk? Regrettably, I think the temptation is too great and these proposals will be implemented. Personally, I shall not be buying Aramco shares.
Mike Dennis