On 1 July 2018 the FCA (the Financial Conduct Authority, the UK’s financial services regulator) introduced a new category of premium listing exclusively available to equity issuers that qualify as ‘sovereign controlled commercial companies’ (SCCs). The attractions for such issuers of this new form of listing are that it allows them to attract investors who look to invest in equity that is underpinned by the demanding corporate governance and other investor protection standards of the UK’s top tier, premium listing option while allowing such issuers exemptions from two key rules under those standards that might well cause them significant compliance difficulties, because of the complex nature of their relationship with the sovereign government that controls them.
The background to this new listing category is the concern of the FCA and the LSE that London should not miss out on being the listing venue of choice for high profile IPOs of issuers with a controlling (ie a 30% or more) shareholder that is a sovereign entity, such as that planned last year by Aramco. The worry was that sovereign-controlled issuers may be put off from seeking a premium listing in London because of certain of the UK’s premium listing rules that are not seen in the listing regimes in New York and certain other popular listing venues, in particular two that require: (i) a ‘relationship’ agreement to be put in place between the issuer and its sovereign controlling shareholder limiting certain involvement by the controlling shareholder in the running of the issuer’s business, and (ii) an independent shareholder vote on all ‘related party transactions’ between the sovereign entity (and its associated parties) and the issuer.
Another very important accommodation that will be available to SCCs wanting to take advantage of this new premium listing option in London is that, uniquely for such issuers, they will be able to list their depositary receipts (representing tradable entitlements to their underlying equity shares) and not just the equity shares themselves. This will be very attractive for foreign incorporated SCCs whose shares—not being securities governed by English law—would not be eligible for settlement in London’s electronic settlement, Euroclear CREST.
With the exception of the two key premium listing rules mentioned above, all the other existing premium listing requirements will apply to SCCs wishing to take advantage of this new listing option. Those listing requirements include, by way of example: shareholder approval for significant M&A and other transactions, following the UK Corporate Governance Code, independent shareholder voting on the election of independent directors, pre-emption rights in respect of issuances for cash, no ‘weighted voting rights’ shares and the appointment of a ‘sponsor’ to advise the SCC with respect to its listing obligations.
Allowing SCCs these two relaxations under the premium listing rules—in its original proposals the FCA considered allowing SCCs two further relaxations but, as result of negative feedback received, largely from investors, it decided to withdraw those from the finalised rules—has been controversial, with a small majority of respondents to its proposals being opposed to the new listing option.
For a fuller description and analysis of this new SCC premium listing option, please see the client briefing that Shearman & Sterling has produced.
This post comes to us from Shearman & Sterling.