IoD urges City watchdog against bending London IPO rules for Saudi Aramco

The City watchdog is today urged not to bend London listing rules to accommodate what is expected to be the world’s largest ever stock market flotation.

The Institute of Directors (IoD) has gone public with its opposition to Financial Conduct Authority (FCA) proposals that would pave the way for oil giant Saudi Aramco to list on the London Stock Exchange next year, valuing it at up to $2 trillion (£1.5 trillion).

The FCA plans, allowing state-owned companies like Aramco to qualify for a premium listing with less onerous disclosure and regulatory rules, were put forward for consultation in July.

In its response to the watchdog, published today, the IoD said listing rules should not be “watered down” for sovereign wealth funds, warning this would risk the UK’s global reputation for corporate governance.

It cautioned of the possibility of “politically-motivated ownership interference over the company by the state apparatus” and suggested national governments would be in a position to undermine the rights of minority shareholders.

IoD director general Stephen Martin suggested the rule changes could be “interpreted as an opportunistic attempt at boosting short-term primary issuance which ignores the longer-term implications for the overall UK corporate governance regime”.

But Mark Austin, a capital markets partner at Freshfields Bruckhaus Deringer, defended the FCA rule changes. With Brexit on the horizon, he said the UK needs to be “even more nimble and creative and street-fighterish” than in the past to retain its position as a global listing venue.

Austin told City A.M. that the proposed rule changes will leave in place “protections of the premium listing regime”.

He added: “Plus it’s very unlikely that any of these companies will be eligible for inclusion in the FTSE UK indices, so investors won’t have to buy them. It will be a genuine case of caveat emptor and that if you don’t like the look of the entity, just don’t buy it.”

Saudi Aramco, a sovereign-held entity, is thought to be heading towards a dual listing, floating five per cent of its shares through an initial public offering (IPO) in Riyadh and London or New York next year.

In addition to the IoD, fund management bodies such as the Investment Association (IA) and the International Corporate Governance Network (ICGN) have expressed opposition to the FCA proposals.

IA boss Chris Cummings warned that the shake-up “could impact on London’s reputation and future as one of the world’s leading financial centres”.

ICGN policy director George Dallas told City A.M.: “The rules shouldn’t be bent... The idea of labelling this as premium is potentially deceptive and misleading.”

Mark Field, Tory MP for the City of London and Westminster, told City A.M.: “It is understandable that some in the City are keen to attract such substantial IPO business, but the IoD are wise to remind us why we have a listings code.

“Other than the size of the Saudi Aramco deal, it is not clear the exceptional circumstances that apply here [should] persuade the authorities to rip up the rulebook.”

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