By Kylie MacLellan
LONDON, Nov 5 (Reuters) - Britain's financial regulator isto bolster its stock market listing rules to better protectminority shareholders, after high-profile scandals at miningcompanies ENRC and Bumi left some investorsnursing heavy losses.
The Financial Conduct Authority (FCA) said on Tuesday newmeasures to be introduced next year would include a requirementfor companies in which one shareholder owns more than 30 percentto have a "relationship agreement" in place to ensure they canoperate independently from that shareholder.
Investigations into alleged irregularities at Kazakh mininggroup ENRC, which listed on the London Stock Exchange (LSE) in 2007, and Indonesia-focused Bumi, listed in 2011,have put a spotlight on listing rules and the damage done to theinterests of minority shareholders.
Both were hit by shareholder battles that have batteredtheir shares, raising questions about how they came to market.
The companies, at least initially, had significantshareholders - ENRC was controlled by its trio of foundingshareholders and the Kazakh government, while Bumi waseffectively controlled by its co-founders the Bakrie family.
ENRC is now set to delist from London after a buyout by thefounders and the Kazakh government.
Many companies with majority shareholders already haverelationship agreements, but shareholders had often complainedthat they are either ignored or ineffective.
Bumi, for example, did have a relationship agreement withthe Bakrie family, but that deal allowed the family to nominatethe chairman, chief executive and chief financial officer.
The FCA said it would set minimum requirements forrelationship agreements, which would for example ensure thatminority shareholders could have the ability to vetotransactions between a business and its main owner.
"That provides the minority shareholders with some teeth tobe able to discipline the controlling shareholder where theybreach the relationship," said David Lawton, director of marketsat the FCA, which can publicly censure or fine a company whichbreaks the listing rules.
The Association of British Insurers (ABI), whose membersmanage nearly $3 trillion of assets, is among those who havecalled for more protection for minority investors.
"These are all good steps in the right direction, althoughwe would like to see some of this go a little further," saidRobert Hingley, director of investment at the ABI, which hadsuggested the FCA needed the power to punish the controllingshareholder rather than the company.
PROTECTING INVESTORS
The rules, first proposed by FCA predecessor the FinancialServices Authority, will apply to companies with a "premium"listing, who already face higher requirements on regulation andcorporate governance than those with a standard listing.
Some warned the tougher controls could risk drivingbusinesses away. "It remains to be seen whether, by singling outone type of company ownership for extra rules, the FCA willdiscourage these companies from listing in London," said RogerBarker, Director of Corporate Governance and ProfessionalStandards at business group the Institute of Directors.
Under the changes, minority shareholders will also havegreater power over the election of independent directors, whowill have to be approved by both the shareholders as a whole andthe minority group.
The FCA stopped short of increasing the minimum "freefloat", the proportion of a company's shares which must befreely available to trade, from its current level of 25 percentto the as much as 70 percent requested by some investors.
It said this seemed too blunt a tool, and that it needed tobalance protections with unnecessarily increasing the regulatoryburden on companies that are already well governed.
Shares subject to a lock-up of more than 180 days will notcount towards the free float level, however, the regulator said,and it is also further consulting on criteria it should takeinto account when considering waivers in individual cases.
There are around 50 premium-listed companies on the LSEwhich have a controlling shareholder. Those who do not alreadymeet the new rules will have six months from the mid-2014implementation date to ensure they comply.
