Opinion: Has London Sold Its Soul to the Saudis?

Published July 18th, 2017 - 12:58 GMT
The Brits want Saudi Aramco to list in London even if that means bending strict stock market rules. (AFP/ File)
The Brits want Saudi Aramco to list in London even if that means bending strict stock market rules. (AFP/ File)

Regulators are planning to rip up strict stock market rules to allow Saudi Aramco – the world’s biggest company – to list its shares in London.

Saudi Arabia wants to raise £75 billion ($97.9 billion) by selling 5 percent of the state-controlled oil giant to investors, valuing the company at £1.5 trillion in the biggest stock market flotation of all time.

But rules in London dictate firms must offload at least 25 percent of their shares to gain ‘premium’ status on the stock market – something the Saudis want.

To overcome the problem, and lure Aramco to London rather than New York, the Financial Conduct Authority is proposing to create a ‘new premium listing category for sovereign-controlled companies’.

The move sparked a backlash in the Square Mile as critics worried about corporate governance issues at Aramco, the risk to investors who buy the shares and damage to the City’s reputation.

The FCA proposals come just months after London Stock Exchange chief executive Xavier Rolet joined Theresa May on a charm offensive in Riyadh in a bid to woo Saudi ministers. The Prime Minister is understood to have hired legendary banker and former Lazard chairman Ken Costa to advise on the deal.

Bankers, lawyers and other City advisers can look forward to a fees bonanza if Aramco picks London over New York.

But institutional investor Royal London Asset Management said special concessions for Aramco would be ‘highly inappropriate’. It warned that while the listing would bring a ‘prize asset’ to London, bending the rules to accommodate it ‘flies in the face of what is acceptable’.

Ashley Hamilton Claxton, corporate governance manager at Royal London, said the FCA’s plans were ‘bad news’ for the City. Garry White, chief investment commentator at Charles Stanley, said: ‘We should not make any exceptions for oligarchs or state agencies. In addition to the Saudi government, the main beneficiaries of this float, if it happens, will be advisers in the City – and that’s why they are keen.

‘I worry about private shareholders and pensioners investing in a company where the corporate governance is opaque.’

He also cast doubt over whether the listing will go ahead given the Saudis’ own valuation. He said: ‘It looks ambitious.’

Aramco is the world’s biggest oil producer and pumps around one in nine barrels of crude globally, but its value has come under scrutiny as it is based on estimates of oil reserves while the company has never released financial statements.

The Saudi royal family is trying to make the country less dependent on oil revenue and is planning to float Aramco next year. FCA chief executive Andrew Bailey defended the proposals and said sovereign owners were ‘different’ to private sector individuals or companies, a fact ‘long recognised’ by investors.

And he added: ‘Refining the listing regime in this way would make UK markets more accessible – while ensuring that the protections afforded by our premium listing regime are focused and proportionate.’

The LSE said: ‘We support initiatives that enable UK markets to function well. Providing discretionary access for investors to a broad range of UK and global companies is fundamental to London’s role as the most international financial centre.’

Banker Schmoozing for Number 10

At the heart of the bid to woo the Saudis is one of the City’s best-knownbankers.

Ken Costa, the 67-year-old former chairman of Lazard, is working as an adviser to Theresa May as the UK seeks to help Saudi Arabia become less dependent on oil.

The South African-born banker and philanthropist, who has two sons and two daughters with his wife Fi, started out at SG Warburg under legendary City figure Sir Siegmund Warburg. He advised Mohamed Al-Fayed on his £1.5bn sale of Harrods to the Qataris.

Costa is chairman of Alpha International, which promotes an introductory course to the Christian faith that has been attended by more than 2m people in the UK and 27m worldwide.

He has also published a book called God At Work, to encourage more Christians to work in the City.

By Hugo Duncan

 


© Associated Newspapers Ltd.

You may also like

Subscribe

Sign up to our newsletter for exclusive updates and enhanced content