Bending London’s listing rules to win Saudi favour smacks of desperation

Now here’s a tricky question. The world’s largest oil company, potentially worth six times as much as ExxonMobil and ten times as much as Royal Dutch Shell, wants to list its shares on a major stock exchange next year, and has indicated that the choice is between London and New York. The company’s initial public offering of just 5 per cent of its shares promises a $100 billion deal that will generate a fee bonanza for bankers, lawyers and PR men in the chosen marketplace, with several more tranches to come. Clearly London should go all-out to win this lucrative and prestigious piece of business, which would reconfirm the City’s pre-eminent place in the financial world. But the company is Aramco and its owners, the Saudi royal family, are leveraging their power as Middle East and Opec kingpins to demand special treatment, as they always do. Just how far should we bend over to accommodate them?

‘Touch your toes, boys,’ seems to be the answer from the Financial Conduct Authority, led by the Bank of England’s Andrew Bailey. Without actually naming Aramco, the FCA has come up with proposals to allow foreign state-owned companies to list in the LSE’s ‘premium’ category — which normally carries the highest level of governance and requires 25 per cent of the shares to be offered — but with rule changes that blatantly reduce protection for minority investors.

Most importantly, such companies would no longer be required to do business with their controlling state shareholder on arm’s-length commercial terms, so investors will only find out afterwards if the company has sold significant assets back to its government at below-market prices. Nor will investors have a vote on who represents them on the company’s board if they are unhappy with the way their interests are treated.