The British Establishment is performing ever more strenuous gymnastics to attract Saudi Aramco to list itself on the London Stock Exchange. The company is so large that it would dwarf Exxon, Apple, Google and Warren Buffet’s Berkshire Hathaway combined. In a post-Brexit economy where confidence is everything, attracting such a listing would steady Britain’s economic boat considerably.
The latest phase in these unseemly tumbles includes rule changes at the London Stock Exchange. The Saudis being the Saudis want a so-called “premium” listing and not a “standard” listing for their flagship oil company. The British being the British are prepared to change the rules to suit. Hence, “premium” listings will no longer require related party transactions to be reported as transparently as exchange regulators normally demand.
This part of the rule change means that, in theory, a London-listed Saudi Aramco could sell a huge chunk of its assets to the Saudi state (around a fifth), without ever informing private sector investors. That is just one reason why the Investment Association, which represents the City of London’s biggest fund managers, is opposed to the idea. “Investors believe,” huffs indignant Chief Executive Chris Cummings, “that a premium listed segment without these investor protections is not a premium segment and will not provide the protections that investors expect.”
The second investor protection now deemed unnecessary is that state-controlled companies aren’t being asked to give their shareholders a vote on the appointment of directors responsible for representing shareholder interests. This means, for example, that should a well-connected Saudi young man apply to be an independent director at Saudi Aramco, shareholders would no longer be given a voting opportunity to prevent his appointment. That would be regardless of whether he was more accustomed to seedy Riviera nightclubs or was an alumnus of prestigious business schools; or whether he was being chosen on merit or due to nepotism; or whether he was good for Saudi Aramco investors, or simply a pawn in the latest palace intrigue in Riyadh.
Watering down the rules to suit the times is just one aspect of the latest oleaginous attempts to seduce big money from Saudi Arabia, which has been a recurring theme in Britain for almost a hundred years.
The British government apparently places Saudi Arabia at the top of its foreign policy priorities. In April, Xavier Rolet, who runs the London Stock Exchange, travelled with Prime Minister Theresa May to court Saudi Aramco’s top executive Khalid Al-Falih, who also serves as the Kingdom’s Energy Minister. The retention of Tobias Ellwood as Middle East minister at the Foreign Office in Westminster was decided in part because of his professional background in stock market listings. May’s decision not to publish a recent report into overseas funding of so-called “extremism” in Britain might well be predicated on not wanting to criticise the House of Saud too much at such a sensitive time.
The stakes are high. American lawyers are already itching to sue the British financial authorities should they go ahead with this Saudi Aramco switch-around. Moreover, “the City” — as Britain’s London-centric finance and insurance industry is known — contributed some £70 billion in tax revenues last year; that equates to more than half of the budget for the National Health Service.
There are already major questions being asked about how reliant Britain’s hospitals and schools can be on financial services revenue, now that the UK is destined for an economic future outside the European Union. London’s share of global initial public [share] offerings (IPOs) is now at its lowest since 2012. Attracting Saudi Aramco may redress the balance, but offering the Saudis too much may make London look like a cowboy operation, where money or menace attract special dispensation.
We have been here before. In the mid-2000s, London began courting ex-Soviet Union countries and their own public listings. Saudi Aramco is not being asked to float more than twenty-five per cent of its value, and nor was the Kazakh mining group Eurasian Natural Resources Corporation when it listed back in 2007. Investors who had put in £100 back then would have received just £45 back when it was delisted in 2013. It was one of the worst performing stocks in living memory.
The rules that were bent to allow ENRC to list in London, alongside other Russian companies, look naive in retrospect. Top tier investors in the group later told the FT that, “ENRC was a company that should never have been listed in the first place and should have been left well alone.” They cited the same kind of small float percentage that Saudi Aramco is now aiming for. “ENRC has not been good for shareholders, the City of London or anyone,” said another source. “It, more than anything, highlights the dangers of buying into companies with poor corporate governance and a structure of control that resembles an oligopoly.”
That all sounds familiar, so why are we going down this path again? Saudi Aramco is the centre-piece of an oligopoly which should make any investor cautious, and any regulator itchy. Only last month, the Saudi Arabian Crown Prince was placed under house arrest while the generally acknowledged hothead Mohammed Bin Salman effectively took over the running of the country. Who is to say that the same may not happen in the months and years ahead to those who are currently running Saudi Aramco?
The company won’t even be declaring how much oil is left in its reserves. Britain’s Financial Conduct Authority and the London Stock Exchange should tread warily; very warily, indeed.
The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.