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British investors wary of Aramco

International Business
Thu, 11 May 2017
GDN Online Desk


LONDON: While Britain’s stock exchange pulls out all the stops to woo Saudi Aramco, some leading British fund managers who would be among potential investors have expressed reservations about the oil titan’s corporate governance and valuation.

The Saudi government values the state firm at $2 trillion and plans to sell a stake of around five per cent next year in what is expected to be the largest stock market listing in history. Global financial centres from London to New York and Hong Kong are vying for a piece of the action.

Sources said last week that the London Stock Exchange was working on a new type of listing structure that would be more attractive for Aramco by allowing it to avoid the most onerous corporate governance requirements of a primary listing, without being seen as second class.

But even should the LSE win an Aramco listing, active fund managers based in London who would be among potential buyers of shares said their participation was far from guaranteed, with many expressing concerns about the level of influence investors could command as well as corporate transparency.

Trevor Green, head of UK equities at Aviva Investors, the fund arm of British insurer Aviva, cited “very big governance issues” around how much independently verified data about the company’s oil reserves would be given, its board structure and the small portion of the company being listed.

“At this stage we would struggle (to take part)... governance is a key part of our process and this is going to break it in a lot of ways,” Green said.

JO Hambro fund manager Clive Beagles said he would likely look at the Aramco listing but doubted he would participate “because of those issues about being such a minority investor relative to people that you’d have very little influence over”.

Aramco has brought in investment banks, auditors, lawyers and management consultants as well as investor and public relations firms to help it restructure, go over its accounts and advise on changes it needs to make to its corporate governance to become a publicly listed company.

Companies looking to list on LSE with a “premium” listing need to float at least 25pc of their equity. A “standard” listing allows a company to list under less-strict governance rules, although it is not then eligible for inclusion in the FTSE index and is considered a second-tier listing, something that would be less attractive to Aramco.