Almost every investment banker and corporate lawyer in town, obviously. Aramco, if it is really worth about $2tn (£1.5tn), would be the world’s biggest flotation. The advisory fees would keep rolling in for decades because, once a firm has settled on a foreign stock exchange, it tends to stick around.
That is why there is an intense lobbying effort to persuade City regulators that, to sweeten the appeal of London over New York, Aramco should be given fast-track entry to the FTSE 100 index, even though the Saudi regime seems to have no intention of meeting one of the basic qualifying criteria. Only a 5% slice of Aramco would be sold to outsiders, it is reported, whereas the rules state that at least 25% of the shares must be in public hands to be a so-called “premium” listing. The Saudis seem to fancy the “premium” label and prestige of FTSE 100 status, but don’t like the obligations that would go with them.
Thank goodness, then, that the Investment Association, which represents the fund management establishment, is kicking up a fuss. It makes a point that is really just common sense. If you have a sound rule, born from hard experience of how minority investors can be exploited by a single controlling shareholder, stick to it. If you bend the rules to accommodate a deep-pocketed new arrival, you will look desperate and grasping, which will damage London’s supposed standing as a high-class financial centre.
Chris Cummings, the chief executive of the association, didn’t put it so strongly, of course. Nor did even he mention Saudi Aramco. But everybody knew the context when he wrote last week to the Financial Conduct Authority to say that the 25% minimum level should apply “irrespective of the size of the company being listed” and “should be preserved at all costs to protect the integrity and standard of the UK premium listing”.
He’s right – and he’s right to be alarmed. An FCA consultation on listing rules for foreign firms is under way and has suggested an “alternative segment” for “companies where there is a founding family or government that wishes to retain control rights that are incompatible with a conventional premium listing”.
If this new segment was excluded from FTSE indices followed by tracker funds that carry many small investors’ savings, little harm might be done. The idea might even have limited merit. But don’t, for heaven’s sake, mix “conventional” and “unconventional” and say it can all go into the FTSE 100 pot. If you do, the whole principle of a premium listing, imposing extra demands on a company, is lost.
It does not require any genius to guess why Xavier Rolet, the chief executive of the London Stock Exchange, was on the trip to Riyadh with Theresa May in April. In some quarters, persuading Aramco to prefer London over New York is presented as act of patriotism, a way to demonstrate the City’s pulling power after Brexit. It is argued that the 25% rule was never designed with companies as big as Aramco in mind, so it shouldn’t be allowed to get in the way of good business.
That line of thought puts an absurdly glossy veneer on the lust for fees. It also ignores the interests of investors. The 25% threshold was not plucked out of thin air. It is designed to ensure that minority shareholders can exercise minimum rights on how a company is run and who serves on its board. In the absence of such protections, you can end up with cases like ENRC, the Kazakhstan mining outfit that was briefly a member of the FTSE 100 index, lost a packet for its shareholders, and was dubbed “more Soviet than City” by one non-executive director as he was ousted.
Aramco may say it’s made of better stuff and – who knows? – it may even be willing to defy expectations and reveal audited details of its oil reserves as Shell, BP and others must do. But the 25% qualifying criterion for a premium listing should still apply, even when a 5% slice could be worth $100bn. It is there for a good reason.
Let’s hope the intervention of the Investment Association will knock some sense into the politicians, bankers and regulators who seem dazzled by the prospect of Saudi riches. The last time the City got into the game of watering down listing requirements to drum up business from foreign governments and oligarchs, the story ended badly. Let Aramco list in London if it wishes, but Saudi ministers should be told they must play by the rules as they find them.
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