U.K. Paves Way for London Aramco Listing With New IPO Rules

By Ruth David and David Hellier
The U.K. market regulator may ease listing requirements for companies controlled by a sovereign country as London woos Saudi Aramco, which is planning what could be the world’s largest initial public offering.

The Financial Conduct Authority on Thursday outlined a new category in its premium listing segment for state-owned businesses, proposing two key exceptions. While the proposals could inch London ahead in the global competition to lure the oil giant’s listing, a shareholders’ group criticized weakening protections for investors. The company — formally known as Saudi Arabian Oil Co. — aims to raise as much as $100 billion.
Under the proposed changes, sovereign shareholders that own significant stakes will no longer be considered related parties — meaning deals they do involving the premium listed company they control, such as buying from or selling state assets to that company, will not be subjected to a vote by independent investors. They will also be exempt from rules that apply to other controlling shareholders, such as those which restrict freedom to appoint directors to the board without the approval of independent shareholders.
The U.K Investment Association, an influential industry body that represents funds managing more than 5.7 trillion pounds ($7.4 trillion), said it opposes the proposals.
“The FCA is consulting on removing key investor protections from the premium listed segment to accommodate sovereign-controlled companies,” said Chris Cummings, chief executive officer of the Investment Association. “Investors believe a premium listed segment without these investor protections is not a premium segment and will not provide the protections that investors expect.”
London Won’t Let Rules Get in Way of its Aramco Love-In: Gadfly
The London Stock Exchange’s premium listing segment has stricter rules and reporting requirements than a standard listing. It also has access to a wider pool of investors and large companies typically list on the premium segment. An Aramco listing would be a boost to post-Brexit London, helping politicians make the case that the U.K. is open for business and remains a financial hub even as it leaves the European Union — and its single market.
“These changes risk weakening the premium listed brand in London,” said Nicholas Holmes, equity capital markets partner at law firm Ashurst in London. “The proposed changes dilute rules designed to bolster the independence of sovereign-controlled listed companies and limit independent shareholders’ ability to protect that.”
Saudi officials have said they are looking to list as much as 5 percent of Aramco in Riyadh plus one or two foreign exchanges. It’s fiercely competitive, with London, New York, Hong Kong, Singapore, Tokyo and Toronto all named as possible candidates. The moves come as IPO activity in the Middle East is gathering pace. Apart from Aramco, large state-owned companies including Abu Dhabi National Oil Co. are planning stock sales for their businesses.
“This is a clever solution to the dilemma of Aramco, which does not meet the general requirements regarding free-float and corporate governance,” said Edward Bibko, head of capital markets in Europe, the Middle East and Africa at Baker & McKenzie LLP. “We are aware of other large privatizations in the works that may also benefit from this new category.”
The FCA is also proposing a new category in its premium listing that will allow companies to list depositary receipts instead of stock.
London Stock Exchange Group Plc CEO Xavier Rolet was by the side of U.K. Prime Minister Theresa May during her trip to Saudi Arabia in April as she sought to convince Saudi Aramco to pick London for its listing. The operator of the London Stock Exchange said in an emailed statement that the company supports initiatives that enable U.K. markets to function well and compete internationally.

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