London Stock Exchange CEO Rolet fires back at Aramco IPO critics

Saudi Arabia looking to list as much as 5 percent of Aramco in Riyadh plus one or two foreign exchanges

19/10/2017 10:24 AST

London Stock Exchange Group’s Xavier Rolet hit back at criticism that listing rules were eased to pave the way for one of the world’s largest initial public offerings.

The exchange went on a charm offensive after Saudi officials said they are looking to list as much as 5 percent of Aramco in Riyadh plus one or two foreign exchanges.

But the 200-member UK Investment Association, which represents funds managing more than 5.7 trillion pounds ($7.5 trillion), cried foul, saying that 25 percent should be the minimum free-float level for any premium listed company in the UK, and that Saudi Aramco should not be an exception.

“There is not a 25 percent governance rule. There’s a liquidity test,” Rolet said in a Bloomberg TV interview Wednesday.

“There have been companies that are extremely large that have been allowed to list with less than 25 percent. Let’s not confuse liquidity with governance.”

Winning the IPO would be a coup for post-Brexit Britain, and Rolet in April joined UK Prime Minister Theresa May on a trip to Saudi Arabia as she sought to convince Saudi Aramco to pick London for its listing. New York, Hong Kong, Singapore, Tokyo and Toronto have also been named as possible candidates for the Aramco IPO.

London’s attempt to win over the Saudis has drawn other critics. In what was seen as a bid to lure Aramco, the UK’s Financial Conduct Authority in July outlined a new category in its premium listing segment for state-owned businesses, proposing two key exceptions.

Under the proposed changes, sovereign shareholders that own significant stakes will no longer be considered related parties - meaning deals they do involving the premium listed company they control, such as buying from or selling state assets to that company, will not be subjected to a vote by independent investors.

They will also be exempt from rules that apply to other controlling shareholders, such as those which restrict freedom to appoint directors to the board without the approval of independent shareholders.

Norway’s sovereign wealth fund fired back, saying in an October letter to the FCA that the plan would relax rules for sovereign-controlled companies which “provide the necessary checks and balances to protect the interests of minority shareholders from potential abuse.” The proposal “could be seen as a step back in terms of investor protection.”

If Saudi Arabia achieves its valuation, the IPO would raise about $100 billion, making it the largest deal ever. Alibaba Group Holding Ltd. raised $25 billion in a stake sale in 2014.

In the TV interview, Rolet also said that the LSE’s members are ready for the introduction of Europe’s MiFID II financial rules overhaul, which kick in on Jan. 3.

The European Union law affects almost every part of LSE’s business -- imposing stringent transaction-reporting rules on fund managers and limiting the amount of trading that can take place in dark pools, such as the market run by LSE’s Turquoise subsidiary.

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