FCA’s Aramco rule change is nothing new for UK

The FCA’s decision to modify rules in order to allow sovereign owned companies — such as Saudi Aramco — to achieve a premium listing should be seen as just another chapter in the UK’s cosiness with the House of Saud.

  • By Sam Kerr
  • 12 Jun 2018
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Under the new rules, sovereign-controlled companies will be able to achieve a premium listing on the London Stock Exchange, without following the usual rules and practices which come with that label.

They will most notably be exempt from the requirement to gain shareholder approval for related party transactions between the company and the government, although they must disclose them in a “timely” fashion as soon as they are completed.

According to critics, the new rules could reduce investor protections and would challenge the principle of shareholder equalities.

But the rule is not designed to kick-off a vast new wave of new sovereign-controlled companies listing on the London Stock Exchange.

According to bankers on the street there are few other large state-owned companies which are overly bothered by being able to get a premium listing. Companies owned by foreign sovereign states have been listing via London through GDRs for years and will continue to do so.

The rule change is designed to woo Aramco — a move some may call cynical, but in a competitive process with New York and Hong Kong, London wants to remain competitive and this change is a relatively small concession to make if the rumored $2trn IPO does come to the UK capital.

Much of the criticism of the change effectively comes down to the particular foreign government which owns Aramco — the ruling family in the theocratic monarchy which is Saudi Arabia, the House of Saud.

But it is not up to the FCA to determine the relationship between the UK and Saudi Arabia, but the UK government.

And the government is clearly unwilling to censure the regime for any aspect of its human rights and equalities record. The two countries have long-established commercial ties. Numerous contracts for British firms, and the government, have been awarded by Saudi Arabia, and official policy is to strengthen these relationships further.

What is, at bottom, a relatively minor rule change, has a major symbolic value for Aramco, but won't make much practical difference. It's certainly in keeping with the approach taken by the broader UK public sector.

And, if it doesn't work out?

The FCA is expected to review the decision after two years. It can reverse it if Aramco chooses not to list in London, or if the rule change starts a trend the regulator wants to reverse.

If Aramco lists, investors who buy it will likely go in with their eyes open, and the company is unlikely to meet the requirements to ever be listed in the FTSE100 so passive buyers will unlikely be exposed to it.

It may smart that the FCA is changing its rules to suit Saudi whims, but it's a path that's been well trodden by the UK.

  • By Sam Kerr
  • 12 Jun 2018

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