The U.K. Financial Conduct Authority is pressing ahead with plans to create a new category within its premium listing regime that exempts state-controlled companies from certain requirements, seen as a controversial move to help attract Saudi Arabian Oil Co.'s planned IPO to London.
The FCA said the new listing category, which takes effect July 1, will exempt a country from having to enter into a controlling shareholder agreement with the company it controls, adding that the requirement "can be impracticable" for sovereigns. The regulator also removed the requirement for prior shareholder approval for related party transactions between the sovereign and the company as "the number of transactions makes this a disproportionately onerous requirement" for some sovereign-controlled firms.
It will, however, require independent directors of a state-controlled company to be approved by independent shareholders. Such companies must also disclose related party transactions with the government in a "timely" manner.
The FCA's push to ease rules around the listing of state-controlled companies is part of efforts to attract the Saudi government's planned IPO of a 5% stake in Saudi Aramco, the Financial Times said in a June 8 report. The premium listing regime typically requires companies to have a free float of at least 25%.
The regulator had been forced to make a few changes to its original proposals amid investor pressure, the FT said. Bailey denied being pressured, including by the U.K. government, to change the listing rules, or that the regulatory shift is designed to benefit a particular company.
The Institute of Directors is "deeply disappointed" with the FCA's decision, said Stephen Martin, director general of the business organization. The group warned that the FCA's move risks affecting the U.K. market's reputation with investors and as a global governance leader.
"The FCA fails to provide a convincing justification for why listing rules relating to premium category issuers should be waived or removed in cases where the issuer has a controlling sovereign shareholder," said Martin. "If anything, we believe that listing rules should be strengthened for this category of issuer given its distinctive governance challenges and risks."
Aramco is awaiting the go-signal from the Saudi government to push through with an international listing, along with a local listing on the Saudi Stock Exchange (Tadawul). Riyadh has reportedly shortlisted London, New York and Hong Kong for the listing, which could raise as much as $100 billion if Aramco clinches a $2 trillion valuation.
