Fair play to HKEx when it comes to level playing field

PUBLISHED : Tuesday, 20 September, 2011, 12:00am
UPDATED : Tuesday, 20 September, 2011, 12:00am


English Premier League soccer club Manchester United has received permission from the Singapore Exchange for a planned US$1 billion listing in a deal that would include non-voting preference shares.

SCMP, Sept. 17

In case you didn't know it, Hong Kong has long resolved its most vexed question of democracy to everyone's satisfaction - 'A' shares will have the same voting rights as 'B' shares. We're obviously a more democratic place than Singapore.

Of course this still leaves Swire Pacific with 'B' shares that have only a fifth of the 'A' share entitlement to dividends and break-up value. It's a sweet way for the Swire family to maintain a majority in the boardroom with a minority of the share capital.

About 20 years ago the Keswick family decided it wanted the same thing for Jardine Matheson, which was not surprising, given that the family owned only about 8 per cent of the stock and had found that directors' resolutions giving it ultimate mastery might have less force in a courtroom than in a boardroom.

The Noble House's announcement of a big 'B' share issue came to nought, however, when tycoon Li Ka-shing, and then others, decided they would like one too. The stock exchange ruled that Swires could keep its 'B' shares, but there would be no more.

The Keswicks then went off in a huff to find a jurisdiction that would allow them the skewed kind of listing they wanted. Guess where they went.

Yes, you've got it, Singapore.

But Hong Kong held firm. All shares are equal and we will have no nonsense about some shares being more equal than others. That's why Hutchison Port Holdings had to go to Singapore. Our exchange would not list trust units that were effectively shares without votes.

And that's also why the Glazer family is going to Singapore for the listing of Manchester United. There's a lot of talk drifting around at present about how the Glazers think Hong Kong has too narrow an investor base and other deficiencies, but the fact is that we were their first choice and we turned them down. All shares are equal, full stop. They didn't refuse us. We refused them.

And if this portrays Singapore as a bit of a cowboy market, well, it is. They can talk up a storm down there about their standards, and maybe they have some, but those standards are pretty low. A reputable exchange does not accept shareholding structures that undermine the voting rights of the investing public.

I'm not saying the Glazer family has anything nefarious in mind by selling the public non-voting preference shares. I know nothing about the family or the state of its finances.

But it is the sort of thing that immediately raises suspicions, particularly when done in the sports business, where money has a way of going through circuitous routes to surprising recipients.

The biggest danger of a structure that gives controlling shareholders a disproportionate share of the votes in a company is that they will pass the company's business through their own hands first, to the disadvantage of other shareholders.

For instance, instead of buying its supplies directly, a company will buy them through a separate company set up by the controlling shareholders and it will always pay too much for these supplies. Thus the controlling shareholders walk off with the company's profits before the business even gets to the company.

It can also be done without distorting voting rights, of course, but the lower the percentage shareholding of the controlling shareholders the more tempting the practice becomes.

If you own 90 per cent of a company you steal mostly from yourself when you do it. If you control a company while holding only 10 per cent of the shares, it's almost all theft from others.

Of course there are laws against corporate theft, too, but why in the first place create a shareholding structure that by its nature encourages theft?

The answer, I'm sure, is that the Glazer family wants to protect its controlling interest, but is hesitant to put up enough money to do this.

It's not a good enough reason. In greater degree, it's just like saying that you want to own a chunk of gold, but you want others to pay for it. Money is money, and things don't work that way in finance except, obviously, in Singapore.

So let's hear three cheers for our own stock exchange. It's not often I that can find reason to call for them, but it's well deserved this time.