The City’s top fund managers are attempting to torpedo Saudi Arabia’s attempts to list its $2 trillion state oil company on the London Stock Exchange.
In a letter to the Financial Conduct Authority, Chris Cummings, chief executive of the Investment Association (IA), said they would not tolerate any listing that did not adhere to the market’s rules and standards. Although he did not mention Saudi Aramco by name, Cummings warned the regulator not to make an exception to rules that force companies to list at least 25% of their shares to qualify for inclusion in the FTSE indices.
The prospective listing of the Saudi state oil company would be the biggest in history in terms of market value. Yet the Saudi royal family wants to sell only 5% of the company to outside investors.
Advisers have been arguing that Saudi Aramco should be permitted to bend the rules. Due to its sheer scale, the 5% stake could still be worth $100bn (£775m), if it achieves the mooted $2 trillion valuation. The Saudis have also been investigating whether the company could be listed without it having to disclose the true state of the country’s oil reserves.
If Saudi Aramco were permitted into the FTSE 100, tracker funds would be forced to buy its shares. The index would become hostage to the oil price and geo-political tensions in the Middle East.
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City sources said further action could be taken by investors if this first warning shot was ignored. In his letter, Cummings said investors believed 25% should be “the minimum free float level for any premium listed company in the UK, irrespective of the size of the company”. He added: “This should be preserved at all costs to protect the integrity and standard of the UK premium listing.”
Saudi Aramco has created a rift between those who stand to make a fortune in fees and those who do not want to buy the shares. Moelis & Co is sole independent adviser, while JP Morgan, Morgan Stanley and HSBC are expected to underwrite the deal.
The intended float is key to plans to diversify the Gulf state’s economy away from oil. Aramco underpins the entire economy, pumping more than 10m barrels of oil a day last year — 10% of the world’s output. Saudi Arabia’s finances have been crushed by the halving in oil prices over the past three years.
While Aramco’s primary listing is expected to be in Riyadh, exchanges in London, New York, Singapore and Hong Kong have all been vying to play host to its secondary listing.
LSE chief executive Xavier Rolet travelled with Theresa May to Saudi Arabia in April to persuade Khalid al-Falih, the Saudi oil minister and chairman of Aramco, to list in the UK.
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Saudi Aramco is confident it will be granted an exception. In January, chief executive Amin Nasser said “all the markets are willing and ready to co-operate with Aramco and look at all the different challenges and possibilities”.