Special Rules Won’t Fly For Aramco IPO

The UK Institute of Directors has criticized the Financial Conduct Authority’s proposal to amend listing rules that would accommodate Saudi Arabia’s oil giant Aramco, which is planning to list 5 percent in London next year.

According to the organization, which brings together business leaders from all industries, such a rule change is not justified and it might compromise London’s reputation for corporate governance.

The FCA, UK’s financial markets regulator, had previously proposed a new category within its rules for premium listings, “to cater for companies controlled by a shareholder that is a sovereign country.” The aim was to convince Aramco to go for the premium, rather than the standard, listing.

Aramco wants to sell just 5 percent, but under FCA rules, a company qualifies for a premium listing only if it has a minimum 25 percent free float, meaning that Aramco’s 5-percent listing would fall significantly short of qualifying—that is, unless the listing rules were changed.

The Institute of Directors said in a press release that FCA’s proposals “do little to address the risks and challenges surrounding sovereign-controlled companies which include the potential for politically-motivated ownership interference over the company by the state apparatus. National governments are also in a strong position to undermine the rights of minority shareholders and the authority of the Board of Directors at such enterprises.”

Indeed, ever since Riyadh first announced plans to list 5 percent of the state oil company, observers have been commenting that Aramco is a very opaque company, which may well push away potential investors.

Related: Is Big Oil Betting On The Wrong Horse?

Since then, the Kingdom has expended much effort into increasing the attractiveness of the IPO, such as reducing the profit tax rate for Aramco from 85 percent to 50 percent and separating its financials from the state, the FT noted in June.

The valuation of the company has also been questioned. Riyadh says Aramco is worth US$2 trillion, but an FT analysis put the figure at between US$880 billion and US$1.1 billion.

By Irina Slav for Oilprice.com

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