By James Inness and Sean Meehan
On 13 July 2017, the Financial Conduct Authority (FCA) proposed a relaxation of certain aspects of the premium listing segment for sovereign-controlled companies.
The proposed new rules will create a new premium listing category pursuant to which:
- Related party rules will be modified so that the sovereign controlling shareholder will not be considered a related party. Transactions between the sovereign controlling shareholder and the issuer will not require shareholder consent.
- Controlling shareholder rules will not apply to issuers in respect of the sovereign controlling shareholder. Such shareholders will not be required to enter into a relationship agreement.
The related party rules and controlling shareholder rules for all shareholders other than the sovereign controlling shareholder will continue to apply. The FCA will also retain its power to refuse an application for listing if the FCA considers that granting the application would be detrimental to the interests of investors.
In addition, the FCA proposes that the new premium listing segment will be extended to sovereign-controlled issuers of depositary receipts (DRs), allowing previously ineligible sovereign-controlled issuers to access the prestigious premium listing segment. As the 25% free-float requirement is calculated by reference to the total number of DRs in issue, not the total number of shares, the proposed rule changes may also allow issuers greater flexibility to meet this requirement. Issuers with a premium DR listing will be required to afford DR holders the same level of rights, e.g. voting rights, enjoyed by shareholders of premium listed companies. The ability of issuers and depositaries to effect this will be subject to analysis in the appropriate jurisdictions.
A company with a premium listing will be able to transfer to the new category under the FCA’s proposal with the approval of the independent shareholders of the company.
The FCA notes that sovereign-controlled companies are unlikely to meet the eligibility requirements to be included in the FTSE indices. While this is unlikely to be a concern for the largest issuers, smaller issuers will need to balance this disadvantage with the more attractive aspects of a premium listing tailored to their needs.
Responses to the FCA’s consultation paper (CP17/21) are due on 13 October 2017.
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