British Regulators Attempt to Attract Aramco to London: The Effects of Brexit
Saudi
Aramco, or officially the Saudi Arabian Oil Company, is to all intents and
purposes the largest company in the world, although the valuation of the
company differs depending on where one reads, varying between $1.2
trillion, $2
trillion, and even as high as $8
trillion. Suffice to say, the proposed offering of just 5% of the firm’s
shares has sent stock
exchanges into overdrive with the multitude of fees that will be attached
to such an offering and, apparently, the shortlist has been reduced down to
just London
and New York. In order to appear more attractive than New York, the British
regulator - The Financial Conduct Authority (FCA) – has today proposed
that the criteria for a new ‘premium listing’ be altered so that State-owned
companies can qualify for premium-listed status without meeting two key criteria: The first relates to how the
company and the controlling shareholder can conduct deals with each other; the
second relates to allowing investors a vote on independent directors. However,
financial professionals have been quick to condemn this proposal, as the
dilution of the premium-listing category at once reduces the allure that it
brings for investors, and also brings forward the very important concern that
the listing would then ‘not
provide the protections that investors expect’. The deduction that any
interaction between the sovereign owners of the firm and the firm itself would
not be subject to shareholder approval has forced the FCA to respond, with the
assertion being that ‘sovereign
owners are different from private sector individuals or companies – both in
their motivations and in their nature’. Yet, this proclamation by the
clearly-biased regulator did not assuage concerns that the move will ‘reverse
the progress [London] has made in recent years to uphold strong governance and
protect minority shareholders’. Minority investors will naturally be at
risk in such an arrangement, which would usually never grace the prestigious
premium-listed category, but this is no ordinary offering and these are
certainly not ordinary times. Although pro-market campaigners argue that this
dilution of standards is the ‘sort
of flexibility which makes London such an attractive financial market… for this
is indeed a financial market, a free one’, this incredibly short-sighted
viewpoint misses a number of extremely important issues. What precedent does it
set? What of the instability in the company’s region? What of the instability
in the host exchange’s region?
We have discussed the post-2016 arena on many occasions here
in Financial Regulation Matters and,
in a post looking at lobbying
in the United States, the phrase ‘selling to highest bidder’ was mentioned.
However, in this case, it is not just the highest bidder that is of concern,
but any input into the financial sector that is of real concern to the British
politicians. When Prime
Minister May visited Riyadh earlier this year alongside the head of the
London Stock Exchange, the purpose of their visit was no secret. The motivation
for this, rather obviously, is the threatened abscission
from the City of London once the U.K.’s secession from the E.U. is
confirmed – the extent to which Britain relies upon the City means, quite
simply, the British Government must do anything
it can to pump lifeblood into a City under siege. Yet, if we look at Aramco and
its controllers, we the depths that the British Government is seemingly more
than willing to stoop to. Saudi Arabia is currently involved in a particularly
gruesome war with rebels in Yemen, and is in the midst of a crisis
with Qatar over the emirate’s supposed financing of terrorism, which has
raised more than an eyebrow considering the widely-held belief in Saudi-Arabia’s
financing of terrorism, with a Republican Senator recently stating that the
Saudi’s funding of terrorism ‘dwarfs
what Qatar is doing’. In addition to these stories, the long-held
understanding that the Country is one of the worst abusers of Human
Rights in the world is seemingly not enough to stop the British Government
and its regulators from reducing the
scrutiny that the firm would be under, just to encourage it to list in London.
Ultimately, the fears after the decision to the leave the
E.U. have not only been realised, but they have been surpassed. It is only a
year after the decision was made, in the slightest of majorities, and the
Government is already acting in earnest to reduce the level of regulation in
order to garner investment – with investment being an overused term in this
sense; the fees that would go to Financial Professionals is the driving factor
here. The manner at which the Government is courting Aramco’s listing is akin
to putting a plaster on a gaping wound – it is too late, and reducing the
standards required makes the situation irrevocably worse. One commentator noted
that the proposed reduction in standards is not of importance because in
Britain ‘we’re
ruled by Common Law’, and the ‘flexibility’ that is demonstrated by this
reduction in standard ‘secures
London’s pre-eminence’ – it is argued here that the reality is exactly the
opposite; what this reveals to outsiders is that standards are not cherished in
this country, they are for sale. With that in mind, any aim to be the ‘leading
financial centre’ are ludicrous, because the foundations of trust and
certainty are being eroded every time such a move is even proposed, never mind
implemented. The FCA would do well to back down and protect the standards that
London has been famed for, rather than cash-in on them so that the City does
not fall on their watch.
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