U.K. Listing Rule Shift Would Help Woo Aramco -- WSJ

By Samuel Agini and Ben Dummett Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 4, 2017).

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London Stock Exchange Group PLC's top executive endorsed the right of the U.K. securities regulator to consider changing its rules for sovereign-owned companies, a move that could make it easier to woo the listing of oil giant Saudi Arabian Oil Co.

Xavier Rolet's support comes as the U.K.'s Financial Conduct Authority proposes the adoption of a new listing category that addresses the desire of state-controlled companies to access the public markets without necessarily adopting key rules that are meant to protect public minority investors.

The rules, if adopted, could give the LSE an edge over its main rival the New York Stock Exchange in winning the coveted listing of Saudi Arabian Oil, known as Saudi Aramco. But some large institutional investors and business groups oppose the proposed changes, worried they would undermine the integrity of Britain's main stock market.

"It should be a surprise to no one if listing rules are from time to time refreshed by the regulator to keep consideration and to take into account the reality that we live in," Mr. Rolet told reporters, without referring specifically to Saudi Aramco.

The state-owned energy producer is expected to list its shares next year as part of an initial public offering that would value the company at as much as $2 trillion. For the winning venue, the listing promises an influx of fees and international investors looking for a piece of the energy producer. Attracting a company of Aramco's size would benefit the LSE, in particular, by underscoring its status as a global financial hub when Brexit threatens that reputation.

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An Aramco spokesman wasn't immediately available to comment.

The debate over the possible listing changes for sovereign-owned companies largely centers on two key proposals. One is a waiver to the requirement that prevents an LSE-listed company from conducting related party transactions with the controlling shareholder, its directors or associates without first gaining approval from independent shareholders.

The second proposal is to waive controlling shareholder rules that are meant to protect the rights of minority shareholders in companies where one group owns 30% or more of the voting rights.

Saudi Aramco is looking to float no more than 5% of its shares in the IPO.

Mr. Rolet said Thursday that regulators have already allowed companies to sell less than 25% in an IPO as part of a London exchange listing, including commodities trader and mining company Glencore PLC in 2011.

"I think this proves the point that 25% is not a governance test. It's simply a liquidity test," he said. "It's already built into the rules today, that you can list with less than 25%, provided of course you provide sufficient liquidity."

The FCA has justified considering the proposals in part because of the different motivations of sovereign owners. Typically, public companies are answerable to their shareholders. But state-owned firms are also accountable to the sometimes conflicting needs of their governments.

The Institute of Directors, a 30,000-member group in the U.K. made up of directors across sectors, opposes the proposed rule changes. "At best [the proposals] are changes that have been formulated without regard to available evidence concerning state-owned or state-controlled enterprises. At worst, they 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, " the group said this week.

The FCA plans to complete the rules by the end of the year after consulting with market participants.

A version of this article also appeared on Financial News

Write to Ben Dummett at ben.dummett@wsj.com

(END) Dow Jones Newswires

August 04, 2017 02:47 ET (06:47 GMT)