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Trading  | October 17, 2017

All IPO’d up and no place to go? UK portfolio managers with $6.9 trillion resist rule bending by regulator to achieve Aramco London listing

Another potential problem for the world’s biggest ever (potential) IPO…

A lobby group representing UK portfolio managers with $6.9 trillion AUM has warned the UK financial regulator that bending the rules to accommodate Aramco’s IPO will damage London’s status as a global financial centre.

In a letter to the head of the Financial Conduct Authority (FCA), the embattled Andrew Bailey, the Investment Association (IA) argued that it threatened the “high standards” of London’s listing regime.

In “Funds fire broadside over Saudi oil float”, the Sunday Times noted that “Britain’s largest investors have turned up the heat on the City watchdog over its controversial plans to allow Saudi Arabia’s oil giant to float in London.”

Besides the tricky issue of its oil and gas reserves (especially the Ghawar field), the IA argued in the letter that “For the premium segment of the UK main market, investors must have confidence that a company is run for all shareholders, not just the major or controlling shareholder.”  

Selling only 5% of the share capital, rather than the prescribed 25%, is one of the major stumbling blocks in terms of the listing regulations.

According to the London Stock Exchange, a premium listing meets “the UK’s highest standards of regulatory and corporate governance.”

However, regulations are made to be broken…not just by banks and funds…but (when it suits) by the regulator itself, it seems. The FCA’s Bailey has proposed a new category of premium listing which would be tailor-made for government-controlled companies, like Aramco.

According to Bailey, investor safeguards would not be “weakened.”

It turns out that Bailey proposed the new category of premium listing after meeting and having conversations with Aramco and its advisers. As the Sunday Times reports, Bailey “emphasised during those conversations that we (FCA) were reviewing the listing regime.”

Perfect timing.

Clicking on the “About Us” tab on the FCA’s website, the regulator champions its wish that “consumers can place their trust in transparent and open markets” under the heading “Enhancing Market Integrity”.

Having said that, there is an option to click “No” after the question “Was this page helpful?”

In Bailey’s defence, it is possible that he’s being lent on by the British government to find a way to accommodate the high-profile Aramco IPO.

After all, Theresa May travelled to Saudi Arabia in April with the CEO of the London Stock Exchange, Xavier Rolet.

Here is Mrs May making the introductions in Riyadh on 5 May 2017.

Given the stringent anti-trust laws in the US and Aramco’s pivotal role in the Opec cartel, a US listing is also looking problematic. So, it’s no wonder that chatter about delays to the IPO or a private sale to China, or a consortium of sovereign wealth funds, has gathered pace.

Aramco denied such reports on Twitter over the weekend “All listing venues under review for optimal decision, IPO process is on track for 2018.”

If three denials are forthcoming, maybe we’ll know what’s really happening.

In the meantime, it’s embarrassing to the Saudi regime and not good news for improving its short/medium term cash flow problem.

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