LONDON |
LONDON (Reuters) – Britain’s financial regulator is to bolster its stock market listing rules to better protect minority shareholders, after high-profile scandals at mining companies ENRC and Bumi left some investors nursing heavy losses.
The Financial Conduct Authority (FCA) said on Tuesday new measures to be introduced next year would include a requirement for companies in which one shareholder owns more than 30 percent to have a “relationship agreement” in place to ensure they can operate independently from that shareholder.
Investigations into alleged irregularities at Kazakh mining group ENRC, which listed in London in 2007, and Indonesia-focused Bumi, listed in 2011, have raised questions over their route to market and damage done to the interests of minority shareholders.
Both companies, at least initially, had significant shareholders with controlling shares – ENRC was controlled by its trio of founding shareholders and the Kazakh government, while Bumi was effectively controlled by the Bakrie family which co-founded it.
ENRC is now set to delist from the London Stock Exchange (LSE) after a buyout by the founders and the Kazakh government.
The FCA said it would set minimum requirements for relationship agreements, which for example ensure that independent shareholders could have the ability to veto transactions between a business and its main owner.
Many companies with majority shareholders already have relationship agreements, but shareholders have often complained that they are either ignored or ineffective.
Bumi, for example, did have a relationship agreement with the Bakrie family, but that 2011 deal allowed the family to nominate the chairman, chief executive and chief financial officer.
PROTECTING INVESTORS
The rules, first proposed by the FCA’s predecessor the Financial Services Authority, will apply to companies with a “premium” listing, who already face higher requirements on regulation and corporate governance than those with a standard listing.
Under the changes, minority shareholders will also have greater power over the election of independent directors, who will have to be approved by both the shareholders as a whole and the minority group.
The Association of British Insurers, whose members manage nearly $3 trillion of assets, is among those who have called for more protection for minority investors.
Some had called on the regulator to increase the minimum “free float”, the proportion of a companies shares which must be freely available to trade, from its current level of 25 percent to as much as 70 percent.
The FCA stopped short of this, however, saying it needed to balance protections with unnecessarily increasing the regulatory burden on companies that are already well governed.
Shares subject to a lock-up of more than 180 days will not count towards the free float level, however, the regulator said, and it is also further consulting on criteria it should take into account when considering waivers in individual cases.
There are around 50 premium-listed companies on the LSE which have a controlling shareholder. Those who do not already meet the new rules will have six months from the mid-2014 implementation to ensure they comply.
(Additional reporting by Clara Ferreira-Marques; Editing by David Holmes)