London going all out to woo Aramco

British Prime Minister Theresa May at a meeting with Saudi Stock Exchange chairman Sarah al-Suhaimi last month. The London Stock Exchange is vying for a piece of Saudi Aramco's initial public offering - expected to be the largest ever - by creating a
British Prime Minister Theresa May at a meeting with Saudi Stock Exchange chairman Sarah al-Suhaimi last month. The London Stock Exchange is vying for a piece of Saudi Aramco's initial public offering - expected to be the largest ever - by creating a new type of listing structure.PHOTO: REUTERS

LONDON/HONG KONG • The London Stock Exchange (LSE) is working on a new type of listing structure that would make it more attractive for oil giant Saudi Aramco to join the bourse, sources familiar with the discussions said.

Exchanges around the world are vying for a piece of Saudi Aramco's initial public offering (IPO), expected to be the largest in history. The company is expected to list on the Riyadh exchange, the Tadawul, and at least one major international stock market. The LSE is seen as one of the front runners to win part of the IPO and has been pushing hard to land it.

LSE chief executive Xavier Rolet travelled with British Prime Minister Theresa May last month to Saudi Arabia, with the pair meeting the kingdom's sovereign wealth fund, which is expected to be a major decision-maker in the listing process.

But none of the exchange's current listing structures is likely to appeal to Aramco. It is working on a new model that would allow it to avoid the most onerous corporate governance requirements of a primary listing, without being seen as second-class.

Sources familiar with negotiations said the new segment was being devised specifically with Aramco in mind.

Such an approach could leave the British stock market open to criticism that it is changing the rules in order to attract large state-backed companies which are reluctant to meet more stringent corporate governance requirements.

Currently most companies on the LSE have a "premium listing", which is required if they are to be included in the FTSE index. That requires firms to list at least 25 per cent of their shares in a free float, unless regulator Financial Conduct Authority (FCA) makes an exception, and be subject to corporate governance rules which include giving minority shareholders extra voting power on issues such as independent directors.

But Saudi Aramco, which estimates its total value to be around US$2 trillion (S$2.8 trillion), has so far indicated it wants to list no more than 5 per cent of its shares, leaving private investors with little chance to influence the company.

The existing alternative is for Aramco to opt for a "standard listing" which has less onerous corporate governance requirements, especially in relation to the issue of controlling shareholders. But standard listings are generally seen as less attractive to investors and have connotations of being second-best.

Advisers often tell companies not to pursue this option. "By listing as premium or standard, big pension funds and asset managers know where they sit in terms of governance," said Mr Russell Holden, corporate partner at international law firm Taylor Wessing.

An FCA spokesman declined to comment on an individual company's listing arrangements but said it aimed to ensure markets functioned well. The LSE declined to comment and Saudi Aramco said it did not comment on rumour or speculation.

REUTERS

A version of this article appeared in the print edition of The Straits Times on May 05, 2017, with the headline 'London going all out to woo Aramco'. Print Edition | Subscribe