Half of the UK’s top flight FTSE 100 companies are to be hit by new rules designed to prevent a repeat of the stock market scandals at companies like ENRC and Bumi, where controlling shareholders rode roughshod over ordinary investors; Regulator to give new powers to minority investors in large companies where a shareholder has 30pc or more of equity

Half of FTSE 100 to be hit by new listing rules

Regulator to give new powers to minority investors in large companies where a shareholder has 30pc or more of equity

The City regulator, the Financial Conduct Authority (FCA), has outlined a series of drastic new measures designed to protect minority investors by giving them a greater voice. Photo: Reuters

By James Quinn, Financial Editor

1:55PM GMT 05 Nov 2013

Half of the UK’s top flight FTSE 100 companies are to be hit by new rules designed to prevent a repeat of the stock market scandals at companies like ENRC and Bumi, where controlling shareholders rode roughshod over ordinary investors. The City regulator, the Financial Conduct Authority (FCA), has outlined a series of drastic new measures designed to protect minority investors by giving them a greater voice.The watchdog is aiming to give shareholders in large UK-listed companies additional voting rights and greater influence in key decisions.

But the new rules will impact all companies listed on the main market of the London Stock Exchange with a market capitalisation of more than £700m in which there is a controlling shareholder of 30pc or more. FCA data suggests this relates to approximately half of the FTSE 100 index alone.

It will affect a string of household names including Sports Direct, where founder Mike Ashley owns 61.7pc, and Associated British Foods, owner of Primark, where the Weston family’s Wittington Properties owns 54pc.

These companies will be forced to sign a formal agreement with their controlling shareholder, codifying the relationship between them.

The rules will mean a company cannot appoint independent directors without separate approval from minority investors.

They will also ensure that independent shareholders are given a veto over transactions between the companies themselves and the controlling shareholder.

The FCA announcement follows a consultation on the listing rules by the FCA’s predecessor the Financial Services Authority in the wake of situations surrounding companies like Bumi and ENRC.

At Bumi, institutional investors bought into a Nat Rothschild-backed shell vehicle called Vallar, into which Bumi, an Indonesian mining conglomerate, was then reversed.

Ordinary investors ended up in a vehicle which was 43pc-controlled by a concert party made up of the Bakrie family, along with businessmen Rosan Roselani and Bumi’s chairman Samin Tan. The shares, worth close to £14 at their peak in May 2011, are now trading at 203p.

At ENRC, the company’s three founding Kazakh shareholders – who controlled 44pc of the equity – took the company private for £3bn earlier this year, less than half of what it was worth when it floated in December 2007.

David Lawton, the FCA’s director of markets, said: ““Active engagement by all shareholders is essential to make markets work well.

“By safeguarding minority interests from abuse by controlling shareholders, these changes will promote market integrity and empower minority shareholders to hold the companies they invest in to account.”

The new rules will also enhance voting power for minority investors when a company tries to cancel its stock market listing.

The rules come on top of changes to the listing regime, outline last year. The FCA intends to implement the changes by the middle of next year.

However the Institute of Directors hit out at the proposals, saying it could discourage companies from listing in London.

“There is nothing inherently wrong with a company being owned by a majority shareholder. Some of the world’s most successful firms – Microsoft, Amazon, Google and BMW – have large individual shareholders,” said Roger Baker, the IoD’s director of corporate governance.

“It remains to be seen whether, by singling out one type of company ownership for extra rules, the FCA will discourage these companies from listing in London. This would be a poor outcome.”