FCA Questions Aramco IPO

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The UK financial body, the Financial Conduct Authority (FCA) is screening a number of feedback from investors about a proposed new category of stock exchange listing that is directed at taking in international companies that cannot meet prevailing standards, particularly Saudi Aramco.

The regulator has no clear evidence at this point whether investment organisations – including insurance companies and pension funds, as well as individuals – are generally in favour of the idea, which was actually put forward by the FCS in a circular in February.

Investors who have spoken openly about this in the past weeks have demonstrated doubts about loosening up investor protection rules to take in a large foreign family or government-owned ventures.

One of the UK’s largest investment lobbying bodies, the Investment Association (IA), representing 200 asset management firms, with combined assets of £5.7 trillion (Dh26.6tn), unyielding is against modifying of existing rules.

The Aramco IPO proposal is for up to 5 per cent of the company to be listed, and its plain size and its huge role in Saudi Arabia’s economy and power structure denotes it would be hard-pressed to meet governance standards.

“IA members believe that 25 percent should be the minimum free float level for any premium listed company in the UK and that this should be preserved in all cases to protect the integrity and standard of the UK premium market – Saudi Aramco is no exception,” said Galina Dimitrova, the IA’s director of capital markets, in her statement.

This supports the idea of one of IA’s leading members, Hermes Investment Management, headed by Jerusalem-born Palestinian Saker Nusseibeh, which conveyed the same position earlier this month.

Additionally, Tim Goodman, director of Hermes’ corporate engagement unit said, “We believe that the governance protections provided by the premium listing standard help maintain very necessary protections for institutional investors and the ordinary people for which they work.” “We do not believe that a new listing standard to accommodate the [initial public offering, or IPO] of Saudi Aramco would be desirable for investors.”

The FCA, which is under the UK Parliament’s Treasury Select Committee but is outspoken about its political independence, has been hampered by deceiving talk in the middle of the exhilaration to win for London the rewarding role of primary foreign listing for the IPO.

The London Stock Exchange (LSE), a private company managed by chief executive Xavier Rolet, previously an investment banker, has been as eager as any of the advisers to look for a way to take in Aramco.

Nonetheless, the LSE’s rules are guided by the FCA framework, which regulates rules for a “premium” listing, including a 25 percent float and UK governance standards built up over decades, and a “standard” listing requiring less rigid but still arduous European Union standards.

The FCA’s February circular realised that companies had been reducing secondary stock exchange listings, a long-term trend that has hit the LSE and other exchanges, which has been driven by factors including easier investor access to primary exchanges, as well as the cost and burden of meeting multi-jurisdiction regulations.

The FCA’s proposition for a new international category included a requirement to construct three years of audited accounts, as well as fulfilling the “premium” governance rules on a “comply or explain” basis.

The official said the FCA may – or may not – issue a “feedback statement” to indicate what the tenor of the responses has been, although there is no timetable. That might be followed by a consultation paper.

The procedure for Saudi officials in testing the potential IPO – a key policy plank for the newly appointed Crown Prince Mohammed bin Salman – has turned out to be exasperating and drawn out.

The kingdom’s US legal advisers for the process, White & Case, last month counselled against a listing on the New York Stock Exchange, which with a market capitalisation of nearly US$20tn is the greatest in the world and was the Saudis’ first choice.

The LSE precedes the Nasdaq as the world’s third largest exchange, with a market capitalization of less than a quarter that of the NYSE’s.

Aramco officials have yet to comment. They have previously stated that only the local Tadawul stock exchange has been decided upon.

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