By Patrick Lyons and Amy Rees
It has been widely reported that leading international markets, including London and New York, are angling to land the highly-anticipated IPO of Saudi Aramco.
In line with the British government’s stated policy to ensure that London retains its position as the leading international financial centre, the UK Financial Conduct Authority (the “FCA”) has published proposed new listing rules for “sovereign controlled companies”, which would establish a new premium listing category that would permit investors to access such companies’ shares and are intended to enhance London’s attractiveness as a listing venue. The new premium listing category would maintain the existing investor protections applicable to premium listed companies, except for certain related party and controlling shareholder rules.
The FCA considers there to be a clear gap in the market in respect of sovereign controlled companies and that investors and the market are able to assess the additional risks arising from investing in the securities of sovereign controlled issuers. Introducing a new premium listing segment is intended to address this gap and allow for a clearly differentiated listing regime for such companies. However, as companies taking advantage of the new premium listing category would not ordinarily be eligible for inclusion in the leading indices, such as the FTSE indices, no investors would be “forced” to hold shares of sovereign controlled companies.
On 13 July 2017, the FCA published its “Proposal to create a new premium listing category for sovereign controlled companies” consultation paper (the “Consultation Paper”). The Consultation Paper includes proposals aimed at improving access to the UK capital markets for sovereign controlled companies, while ensuring that key investor protections remain in place. The FCA is seeking views on these proposals by 13 October 2017.
The Consultation Paper follows on from discussion paper DP17/2 published by the FCA in February 2017, which considered (i) the role of the listed primary markets as an important component of the broader capital markets landscape and (ii) the structure of the UK listing regime in supporting that role. DP17/2 also proposed the establishment of a distinct international segment for large overseas companies (a proposal that received a mixed response). A significant concern raised by investors in response to this proposal was that the FCA should avoid introducing lower standards of regulation for listed companies on the grounds of nationality.
The key proposal included in the Consultation Paper (to establish a new premium listing category for sovereign controlled commercial companies, to which existing investor protections applicable to premium listed companies, save for the related party rules and the controlling shareholder rules, will be applicable) differs from that included in DP17/2 in that it largely retains the key investor protections that exist for companies with premium listings for the proposed new category, while recognising the differences between purely private sector companies and those controlled by sovereigns.
The proposed new category would thus be available to those sovereign controlled companies that cannot (or may not wish to) satisfy the general rules in respect of controlling shareholders and related party transactions, as they would relate to the sovereign controlling shareholder, but can meet the other premium listing requirements. Access to the new premium listing category is not limited to overseas companies (although it is less likely to benefit UK companies) and would be available to companies wishing to list both equities and depositary receipts representing interests in equity securities.
The FCA asks for views on the overall proposal to create a fourth category of premium listing, as well as to the more specific questions raised in the Consultation Paper, by 13 October 2017. A policy statement, including draft rules, will be published at the end of 2017. The FCA also proposes to review and consult on related changes that may be required to technical and procedural notes.
The FCA is continuing its review of the effectiveness of primary markets and may advance other policy proposals in due course.