Should we not be celebrating the fact that the partial listing of one of the most valuable companies in the world may well be heading for London?
The FCA discussion paper DP 17/2 Review of the effectiveness of primary markets: the UK primary markets landscape does not include the word ‘Aramco’, but in reality, that is what it is all about. Or more specifically, the proposal by the Saudi Arabian oil company Aramco that it will seek to raise money by floating a small percentage of its shares on a major stock exchange. While this is not yet a topic on everyone’s lips, there has certainly been enough comment in the financial media to suggest that the resulting controversy over the means of achieving this may spread beyond the confines of the City and the arcane world of the listing rules.
So why is there or might there be a problem? Surely Saudi Arabia is seen as a valuable ally with whom everyone wants to do business? The nub of the problem is not so much with whom one might be doing business, although that too is a consideration, but rather the manner of it.
The 200-year-old London Stock Exchange, which gave birth to the Securities Institute as a result of Big Bang, is not only one of the world’s oldest stock exchanges but also enjoys a reputation for probity and integrity, honed and jealously guarded over that period. It does not permit countries to list on the exchange, or more specifically does not allow listing by companies whose owners are sovereign entities. As Andrew Bailey, CEO of the FCA acknowledged when introducing the discussion paper DP 17/2: “Sovereign owners are different from private sector individuals or companies – both in their motivations and in their nature.”
Ironically, it is this acknowledged difference which is one of the changes that the FCA is proposing should be ignored when designing a regulatory structure to permit Aramco to qualify for a London listing in the premium category. At the same time the FCA states that the proposed new rules “maintain … the full suite of investor protection applicable to companies in the premium listing regime” while “ensuring that protections afforded by our premium listing regime are focused and proportionate”, which could be taken to read that currently they are not, or more likely that for this particular purpose they are seen, possibly by the client, as disproportionate.
This will further cement the status of London as one of the world’s leading financial centres at a time when there are numerous rivals snapping at London’s heels
Given that, in the case of Aramco, the level of information available to investors will never match that deemed essential for holders of other premium listed entities, and the aims and motivations of the sovereign owners of the business are not generally shared with a wider public through any form of democratic process, one might reasonably question the value of these protections.
On the positive side, the company has said that it understands the implications of being included on the FTSE index as a result of its size, which normally would require fund managers to hold its stock, whether or not they choose to do so. Aramco has offered to list without appearing in any index, thus ensuring that holders of its stock have made a conscious decision to do so purely on the basis of price and available information. At a stroke, that removes any obligation from fund managers to purchase stock where information is opaque.
So, should we not be celebrating the fact that the listing, albeit partial, of one of the most valuable companies in the world may well be heading for London, with all the value both direct and indirect that will accrue? If it is successful, this will further cement the status of London as one of the world’s leading financial centres at a time when there are numerous rivals snapping at London’s heels and the daily drip of news about jobs leaving the UK threatens to turn into a storm.
We believe that it is necessary to recognise that the world changes and one of the enduring strengths of the City of London has been its ability to meet the changing needs of customers and markets as they develop. At the same time it has also been quite good, though not infallible in recognising when to ‘pass’ on the next golden opportunity.
So, we are broadly supportive of the efforts to secure the Aramco listing for London, albeit with a word of caution that we need to be aware that, by doing so we are potentially offering London as a hostage to fortune, in the event that state-owned enterprises from possibly less politically acceptable regimes seek a London listing.