Across The Border
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Hong Kong stock exchange urged to introduce new technology-friendly board

Dual-share structure proves bone of contention among market players; some see it as a way to draw in new-economy firms, others as unfair to investors at large

PUBLISHED : Wednesday, 04 January, 2017, 11:48am
UPDATED : Wednesday, 04 January, 2017, 10:30pm

Many market players support the proposal that Hong Kong launch a new board to attract more technology firms from the Chinese mainland and overseas but have mixed views on how to set rules for this new market.

The need for a new market came to light after accounting firm PwC released a report which showed Hong Kong had a strong initial public offering market but it was extremely biased towards financial firms; few technology plays are listed.

Hong Kong gets support for new board for start-ups but it’s still thumbs down for dual shares structure listings

The PwC report showed Hong Kong took the lead in IPOs last year as firms raised HK$194.8 billion, beating Shanghai and New York and marking the second consecutive year for Hong Kong to rank top in the world. PwC believes Hong Kong’s IPO market could take the lead this year to raise HK$220 billion.

Look beyond the strong total, however, and you see Hong Kong IPOs were still dominated by banks and financial firms with few new-economy firms listing.

Only seven technology and telecommunications companies listed in Hong Kong last year to raise ­HK$5.7 billion, representing just 3 per cent of the total, beating just the mining sector which represented 1 per cent of IPO funds raised last year.

Financial firms took the lead with 69 per cent of all IPO funds raised, next at 18 per cent came consumer and retail companies; industrial firms accounted for 9 per cent.

“This is somewhat worrying as Hong Kong’s IPO market still relies on big mainland banks and financial firms to list here. Most mainland giant banks such as ICBC and BOC have listed here and there would be a limited number of financial firms to list here in future,” Morton Securities chairman Joseph Tong Tang said.

HKEX chief executive Charles Li Xiaojia has said the local bourse would consider all methods, including a new board, to attract tech firms to list here. He has not given more details for such plans.

Financial services sector legislator Christopher Cheung Wah-fung, who is also a broker, supported Li on consulting the market to introduce the new board.

“The new economies and technology companies are going to be biggest players in the markets in future. If Hong Kong could not attract these companies to list here, the local market will be outdated,” Cheung said.

Cheung said the new board could set different listing rules, and he agreed Hong Kong could even follow Singapore which earlier allowed companies to have a dual-share structure to list.

Chamber of Hong Kong Listed Companies chairman Francis Leung Pak-to said the Securities and Futures Commission should consider introducing different boards to give companies and investors more choices.

“The SFC could keep the main-board rules but it could launch different boards with different listing criteria and listing rules to meet with different needs of companies,” Leung said.

Eddie Wong, partner of Capital Markets Services of PwC Hong Kong, also agreed the new board would have lower listing entry requirements and allow dual-share structure to meet the needs of new economies.

“If we can set the new board to be traded by professional investors only, it would set a more flexible rules as these sophisticated investors could understand the risks,” Wong said. “This new board should also only allow certain companies such as start-ups or new technology firms to list in a bid to make them different from the main board and the Growth Enterprise Market.”

Alibaba Group chairman Jack Ma told the Post in November that Hong Kong listing rules were outdated and would need to be reformed to attract e-commerce and other internet companies to list.

Alibaba chose to list its shares in New York in 2014, with a world record-breaking US$25 billion IPO. The choice of New York followed Hong Kong’s refusal to let Alibaba list in a partnership structure. The SFC considers this is a type of dual-share listing, a structure incorporating shares with unequal voting rights. Alibaba owns the South China Morning Post.

In the US, many large companies such as Facebook and Google have a dual shareholding structure. Hong Kong however has banned dual share structures since the 1980s as the regulator considers these unfair to investors.

HKEx decides against proceeding with dual-share-structure listing reform after SFC opposition

Singapore Exchange late last year decided to accept companies with such structures.

Aberdeen Asset Management head of corporate governance David Smith strongly opposed Hong Kong following Singapore’s lead to introduce dual shares structures to Hong Kong.

“The dual shares structures are not fair to investors. Once Singapore is doing it, Hong Kong may be forced to do it while Asian markets may also follow it. If all markets are doing it, it would hurt the intersest of investors,” Smith said.

Smith said many technology firms such as Tencent had listed in Hong Kong without adopting a dual-share structure.

Oriental Patron Financial Group’s Jeffrey Chan Lap-tak agreed that HKEX should launch a new board with lower entry requirements for start-ups but he opposed this new market introducing a dual-share structure.

“The dual share structure is not fair to all investors. It allows founders, even if they do not perform well, to still control the company,” Chan said.

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