The head of Britain’s financial watchdog has admitted he met with Saudi Aramco over a potential £1.5tn stock market flotation in London.
Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), held the talks before publishing heavily criticised rule changes that could attract a multi-trillion pound listing from the oil giant.
MPs and big-hitting City institutions have expressed concerns about the proposals, which would exempt state-controlled companies from stringent rules that apply to other “premium” firms.
Saudi’s state-owned Aramco is preparing to list only around 5% of its shares, and the FCA plans would allow the group to side-step rules that companies must sell at least 25% of their shares to gain a “premium” status.
Without the rule change, it might have to take a “standard” listing seen as less attractive for investors and companies, with lower corporate governance requirements.
Image: FCA chief executive Andrew Bailey held talks with Saudi Aramco earlier this year
Nicky Morgan, chairwoman of the influential Treasury Select Committee, had written to the FCA demanding an explanation.
Mr Bailey wrote: “We can confirm that we held conversations with Saudi Aramco and their advisers in light of their interest in a possible UK listing in the early part of this year.
“We emphasised during those conversations that we were reviewing the Listing Regime.”
He went on to defend the FCA’s proposals in his response to Ms Morgan, adding: “We do not think protections for investors will be weakened.
“We have previously made clear publicly that we will permit lower percentages than 25%, where the value and distribution is such that there can be a liquid market.”
Image: Saudi Aramco would be the world’s largest listed company if a flotation takes place
Ms Morgan has said “questions remain about the level of political involvement in the consultation” – with MPs warning the flotation must not compromise Britain’s “highly regarded” corporate governance standards.
London is battling with exchanges around the world to host the lucrative float of Aramco, which is said to be valued at more than $2tn (£1.55tn) – a figure that would make it the biggest share flotation in history.
A listing in the capital would be seen as a major victory for the City, especially as it faces the threat of losing parts of its business to Europe because of Brexit.
There has already been some opposition to the idea of bending the rules.
Image: The London Stock Exchange could host the float under the proposed rule changes
On Friday, the International Corporate Governance Network, whose members include The Coca-Cola Company, Microsoft and Nestle, became the latest to raise concerns about the proposals which it described as “fundamentally flawed”.
It said while the move “would be attractive to issuers and underwriters in the London market”, such a development would be “anathema” to high standards of corporate governance.
The FCA is reaching the end of its consultation on the proposals and aims to reveal its conclusions by the end of the year.