• The controlling shareholder will not have to enter into a relationship agreement with the company designed to ensure it does not abuse its controlling shareholding.
• An overseas state-controlled company will be able to list depositary receipts instead of shares on the premium segment of the Official List, provided it ensures a full pass-through of shareholder voting and other rights to the depositary receipt holders

As with the rules applying to any controlling shareholder, the threshold for 'control' has been set at 30 per cent of share capital.

While the above concessions are currently available for companies with a standard listing, this category has not proved as popular as the premium segment of the Official List. In part, this may be because of the lower standards of corporate governance that are perceived to apply to standard listings, although a further drawback is that companies with standard listings are not eligible for inclusion in the main FTSE UK indices. 

The FCA cites a number of important protections for shareholders that will remain under its new regime. A sovereign-controlled company will need to disclose information in its IPO prospectus on its relationship with its controller. Post-IPO, it must continue to update the market with any changes to this relationship, in order to comply with its obligation under the Market Abuse Regulation to announce inside information. As with any premium listing, the UK Corporate Governance Code will apply to the company, and it will need to carry on an independent business at all times (which would, for example, prevent it granting security in relation to funding provided by its sovereign shareholder). The independent shareholders will have a separate vote on the appointment of any independent directors. Major transactions ('Class 1' or above) with the sovereign shareholder will still require shareholder approval (but this will be on an 'all shareholder' basis, so will not prevent the sovereign voting its own shares on the approval resolution). Shareholders will also retain their 'pre-emption rights' (pro rata participation rights on new equity fundraisings). The new rules would also give independent shareholders (or depositary receipt holders) a vote on a proposal to de-list or to transfer to a standard listing.

During the FCA's consultation a large number of respondents voiced concerns about the proposed changes, and their potential to dilute the Official List's 'premium brand'. It is unclear whether the limited concessions made by the FCA following the consultation process will be enough to assuage these fears. However, the FCA believes that the new category should be regarded as being a distinct part of the premium segment of the Official List, with sophisticated investors being able to form their own judgements on whether to gain exposure to companies in this category. So far as passive investors in tracker funds are concerned, it says that it is for index providers to decide which entities and securities they consider appropriate for inclusion. In this regard, it is worth noting that FTSE Russell has no plans to change its 50 per cent 'free float' (shares in public hands) requirement, which is likely to prevent the inclusion of many overseas state-controlled companies in the main FTSE UK indices.

The new rules are contained in the FCA's policy statement PS18/11 and will come into force on 1 July 2018.

Client Alert 2018-141