We fear that relaxing these rules would reduce the voice of minority investors
Norges Bank Investment Management

Saudi Aramco: Norway SWF criticizes UK over proposed listing changes

Oct 19, 2017
World’s largest wealth fund voices concerns over planned loosening of governance standards

Norges Bank Investment Management (NBIM), which manages the world’s largest sovereign wealth fund (SWF), has publicly criticized UK plans to change listing rules in a bid to attract the potential $2 tn Saudi Aramco IPO to London. 

Responding to the UK Financial Conduct Authority’s (FCA’s) consultation on plans that could see the creation of a new ‘premium listing’ category with less onerous disclosure and regulatory requirements, NBIM says the changes could harm minority shareholders.    

The proposed changes mean that a sovereign shareholder would not be treated as a related party, allowing it to make transactions between the government and the company without prior shareholder approval.

The UK has an advanced corporate governance framework ‘that is often considered best in class worldwide, boosts investor confidence and helps attract capital to the UK, write Carine Smith Ihenacho, global head of ownership strategies, and Jonas Jølle, head of policy development, at the $957 bn fund. However, ‘the proposal, as currently drafted, could be seen as a step back in terms of investor protection’.

The fund has some £44 bn invested on the London Stock Exchange, with NBIM’s portfolio consisting of minority stakes in listed companies. As such, NBIM says it regards ‘the protection of minority shareholder rights as a requirement’ for safeguarding and promoting its long-term interests. 

‘NBIM supports measures that motivate companies to go public to raise capital and share risk, both in the early phase of their life cycles and in more mature stages,’ write Smith Ihenacho and Jølle in the letter dated October 13. ‘We also recognize the FCA’s objective of enhancing the accessibility and attractiveness of UK markets. At the same time, we note that the proposal would create a new category where companies benefit from the advantages of premium listing – including investor confidence – without having to meet some key requirements for investor protection.’

The existing rules were ‘introduced to provide the necessary checks and balances to protect the interests of minority shareholders from potential abuse. We consider these safeguards to be particularly important when the company has a controlling shareholder, such as a sovereign state,’ continues NBIM.

‘We fear that relaxing these rules would reduce the voice of minority investors and undermine the independence of the board.’

The FCA consultation closed last week with a policy statement expected by the end of the year. This is not the first time the FCA has attracted criticism on the plans, with a number of institutions and investment associations calling the watchdog out over its plans. 

But with a potentially huge payday for advisers from what would be the largest IPO in history – despite the company, which is owned by the Saudi royal family, likely only to list 5 percent of its shares – the UK has been pushing hard to win the deal. Theresa May and Xavier Rolet, the head of the London Stock Exchange who has just announced his planned retirement, traveled to Saudi Arabia in April; and Andrew Bailey, the head of the FCA, last week admitted that the watchdog met with Saudi Aramco earlier this year ahead of the listing proposals.

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