Governance Watch - Issue 19

By Dina Medland in London

Listing Rules

The mutterings have been getting louder since the UK regulator the Financial Conduct Authority first proposed changing the premium listing rules to entice Saudi Aramco to the London market. The pretence of its consideration as a general rule change for ‘state-owned companies’ evaporated even as the announcement was made and hit the media headlines.

FCA Defends Changing Listing Rules To Cater For Aramco IPO read the Bloomberg headline last week as it emerged that Andrew Bailey, CEO of the FCA, had met Saudi Aramco earlier this year and discussed a potential IPO. He “told lawmakers that he didn’t think the changes would weaken protections for investors” in a letter that had just been released, reported Bloomberg.

It was enough to make disgruntled institutional investors weigh in via the media. Saudi Aramco float – it is time for regulator to roll up the red carpet read the Evening Standard headline on a piece penned by Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management.

This is how it began:

“There’s an old joke which asks: where does an 800lb gorilla sit?

The answer is, of course, wherever it likes.

So, where does a sovereign-owned company potentially valued in excess of £800 (billion) list?

For the world’s stock exchanges and listing authorities currently falling over themselves to court Saudi Aramco, the answer appears to be the same, wherever it likes.”

MPs turn up heat on Saudi Aramco rule change read the Express. The story continued to feed itself, reflecting a variety of concerned voices.  The Financial Times story Norway wealth fund warns UK against listing change reported that Norges Bank Investment Management (NBIM) which manages Norway’s oil fund had warned the FCA that its plans to create a “premium” listing that would exempt companies controlled by governments from some rules could harm minority shareholders. NBIM said the protection of minority shareholders was a “requirement” of the fund’s financial interests.

This story was swiftly picked up by other media outlets. City AM: Norway’s huge wealth fund calls FCA’s proposed listing changes “a step back.”  But as the FT story pointed out, while the FCA’s plans have been widely criticised by institutional investors for loosening corporate governance rules to attract this IPO, “it also has support from some in the City, eager to secure what promises to be a fee bonanza for advisers.”

With corporate governance now seemingly at the top of the UK government’s agenda, this is one to keep watching.

Another story in the FT suggesting that Saudi Arabia might be shelving an international IPO in favour of private share placement was dismissed by this tweet from Saudi Aramco. The FCA consultation on the proposed changes to the listing regime is now closed, with a decision expected by the end of the year.

Fraud v Fine

The FTSE 100 mining giant Rio Tinto plc managed to hit the headlines in the UK and the United States at once. The Guardian’s headline captured both ends: Rio Tinto charged with fraud in US and fined £27.4m in UK after being accused of overstating the value of African assets.

Yes, it is the largest-ever fine for such a breach and almost double the previous highest UK regulator fine for similar failings, some £14m levied on Prudential in March 2013. The biggest fine ever handed out by the FCA for any misdemeanour was a £284m penalty imposed on Barclays in May 2015, says City AM in its story.

Follow us on Twitter @ABExcellence

You can find us at Advanced Boardroom Excellence on LinkedIn