A stock market is for the exchange of stock between willing buyers and willing sellers. Obviously. Beyond encouraging the buyer to pay up and the seller to deliver, an exchange’s managers, like those in a dating agency, might feel it’s hardly their fault if things don’t work out. Yet as with a sustainable relationship, businesses contemplating a listing on the London Stock Exchange need stamina and determination as well as a refusal to be shocked at the cost of getting into the club.

There are more rules and disclosures than the customers of the original coffee house could ever have dreamed of, many of them designed after bitter experience. The embarrassment of the last mining boom, especially the governance disaster that was ENRC, is still fresh enough to make the LSE risk-averse for new issues. That’s on top of company law and government-inspired targets or aspirations. If you can’t meet them well, tough, we don’t want your business.

Then there is Aramco. This is the world’s biggest Initial Public Offering by a country mile. Only London and New York have capital markets deep enough to find the hundreds of billions of dollars that the sale of even a minority of Saudi Arabia’s monopoly oil company will raise.

We have yet to see the details of this extraordinary IPO, or indeed, much in the way of any meaningful financial figures, since even the size of the oil reserves has been considered a state secret. Disclosure may fall some way short of that required from a UK company seeking the premium listing a business of this stature would warrant.

Pledges on compliance with the Modern Slavery Act 2015, the Bribery Act 2010, or conflicts of interest rules under the Companies Act 2006 may be difficult to extract. Then there are the more awkward “comply or explain” areas like gender diversity, the renewed Tory manifesto proposals on worker directors and the UK corporate governance code. None is likely to appeal to the Saudi rulers.

Yet the thought of Aramco not listing in London is too horrible for the LSE to contemplate. Fresh from the latest failed merger with Deutsche Borse, it is in no position to dictate terms. Fortunately, the sheer size of the business may save the day. Aramco’s market capitalisation would swamp the FTSE100, making this index even less relevant to UK plc than it already is. Only a small fraction of the company’s share capital will be sold, so it will be caught by the “free float” rule. If that’s not enough to square the circle, another way will surely be found. A stock market is for the exchange of stock, after all.

Bye-bye buyback?

The average share buyback is, in effect, a reward for some shareholders to go away at the expense of those who remain. The motive for the executives is the kicker this process produces in earnings per share, routinely a key metric for at least one of their panoply of rewards.

For the bank advisers, there are commissions, plus the handy bonus of a guaranteed buyer for their marketmakers to trade against. Standard practice dictates that the company earmarks a total to be spent, and then keeps buying until the money’s all gone, almost regardless of price. When share prices plunge, it’s quite common for boards to panic and suspend the buyback programme, thus missing the moment when long-term shareholders would actually benefit.

Even so, it’s something of a surprise to find a proposal in the Tory manifesto to do something about this dubious practice. So far, it’s only “commissioning an examination” to see whether the shareholders benefit. Best of luck with that, but at least it’s a start.

Think of it as a bridging loan

When it comes to pre-election bungs, the policy to scrap the tolls on the Severn bridge must have looked irresistible. Faced with the novel prospect of winning seats in Wales, the Tories can suddenly beiieve that removing this barrier to Anglo-Welsh trade is worth £100m a year. Apparently this economic magic does not apply to crossings of the Mersey, Humber, Tyne, Tamar or Thames at Dartford. No language barrier, perhaps.

 

Advertisements