Aramco is planning the biggest initial public offering (IPO) in stock market history, which will generate hundreds of millions of dollars in fees and commissions for the army of advisers involved. The London Stock Exchange (LSE) — governed by the rules of the Financial Conduct Authority (FCA) — would very much like the honor of listing Aramco.
In those circumstances, if the two organizations had not met they would both have been derelict in their duty to owners and stakeholders.
Yet the breathless way the UK press reported the meetings — disclosed in official government correspondence to a group of parliamentarians investigating the matter — made it sound like they had uncovered some major scandal. Surely it is normal for a company considering a potential IPO to have discussions with the listing authority before committing itself?
The British press is taking its cue from some UK politicians who are convinced there is some skulduggery involved in these quite normal business discussions. The politicians are investigating whether there was any undue pressure brought to bear by the UK government on the market authority to “bend the rules” on listing requirements as a lure to Aramco.
Subsequent to the meeting with the Saudis, the FCA invited consultation on plans to create a new category of listing for international sovereign corporates. Many at the time thought this was a radical and imaginative initiative to attract global sovereign capital to London.
You might imagine in a few years’ time a new “FTSE-SWF Index” with high-grade investment assets from all over the world traded in London, which might help to offset the effects of a post-Brexit exodus.
The closing day for the FCA consultation process was yesterday, and the authority promises to publish recommendations by the end of the year. There is a common misunderstanding that the proposals would reduce the minimum of a company’s capital to be floated to 5 percent, but this is not the case. FCA rules already allow discretion with regard to minimum flotation.
Rather, the proposals suggest new guidelines on related party transactions and rules relating to controlling shareholders. They sound pretty dry and bureaucratic, but the aim is to give some extra protection, above and beyond the existing premium listing rules, to minority shareholders.
It is perfectly normal for a company to meet with financial regulators prior to potential IPO — but some UK media outlets think otherwise.
It is all common sense really from the FCA, but there is a segment of the UK investing public, aided and abetted by a holier-than-thou media, which sees it as unacceptable “rule bending” for foreign companies. There is more than a sniff of xenophobia to these complaints, as is increasingly the case in post-Brexit Britain.
Will the FCA be deterred from bringing in the new code by the whines of protest? That’s hard to say with any certainty, but it’s pretty clear that the UK government, the LSE and the FCA all want Aramco, and will probably not be put off by a few journalists and left-wing parliamentarians.
Will Aramco be deterred from London as result of the campaign against it by a few politically-motivated special interest groups? That is a more interesting question.
The accepted wisdom so far in the debate over where Aramco should list has been that London, though a smaller market, is friendly and accommodating toward the Saudis, who in turn were even willing to overlook the presence of big Qatari investors on the LSE share-register, or at least not regard it as a deal-breaker.
The rival New York Stock Exchange has advantages of size, scale and liquidity, but was always assumed to be a more hostile environment, in view of the fearsome reputation of Manhattan lawyers.
The posturing over the FCA’s meeting with Aramco earlier this year shows that London can be every bit as hostile as New York. Aramco’s owners, already leaning toward the NYSE for the IPO, will likely take note.
• Frank Kane is an award-winning business journalist based in Dubai.
He can be reached on Twitter @frankkanedubai