Chinese media mogul a step closer to increasing TVB stake after court rules against Hong Kong regulator
Judge rules that non Hong Kong shareholders’ votes should be capped at 49 per cent in key buy-back vote
Mainland media mogul Li Ruigang moved a step closer to increasing his stake in Television Broadcasts after the Court of First Instance yesterday quashed a regulatory ruling that gave all the shareholders of the city’s longest running free-to-air broadcaster equal rights to vote on a proposed buy-back.
The court’s ruling also represents a further move towards dual class share structures in the city.
TVB’s largest shareholder, Young Lion Holdings, and its affiliates are obliged to abstain from the vote on the buy-back. Young Lion is controlled by Li, the founder of CMC Holdings.
Second-largest shareholder London-based investment fund Silchester International Investors has indicated it will vote against the buy-back.
However, following yesterday’s ruling, the votes of shareholders not based in Hong Kong will be “scaled back”, meaning they will only account for 49 per cent of votes cast.
“The judge’s decision makes the buy-back much more likely,” said Louis Tse, a director of VC Brokerage.
In January, TVB announced an offer to buy back 138 million shares at HK$30.50 each, or 31.51 per cent of the company, from shareholders for HK$4.2 billion. The offer was later revised to 120 million shares at HK$35.075 each, or 29.9 per cent of the firm.
Young Lion said it would not take up the offer. Li’s stake in the broadcaster would rise to 41.19 per cent after the offer.
Under the takeovers code, once a shareholder owns more than 30 per cent of a company, an offer must be made for the rest of the shares, unless the Securities and Futures Commission grants an exception, or a whitewash waiver.
In May, the SFC said the waiver should be granted so long as the resolution to approve the buy-back offer was approved at the company’s general meeting. It also ruled that there should be no scaling back, that is each share should count for one vote.
This would mean the votes of Silchester, which owns 14 per cent of TVB, would carry significant weight.
“The SFC’s move was partly an attempt to protect the rights of minority shareholders,” Tse said.
TVB, however, sought a judicial review, saying that under the Broadcasting Ordinance, the votes of non-Hong Kong investors should be capped at 49 per cent.
The court ruled that the appropriate clauses of the Broadcasting Ordinance should apply when it comes to the whitewash waiver.
The question of whether to grant the waiver to TVB returns to the SFC and TVB’s shareholders.
A spokesman for TVB said it welcomed the court’s ruling. “It is not uncommon to find weighted voting structure with different voting rights, which is seen as the general trend in overseas markets,” the spokesman said.
The SFC said after the court’s decision all other aspects of the regulator’s ruling remained valid, including the authority to decide on the whitewash waiver.
Hong Kong’s regulators are currently considering allowing so called dual class ownership structures on the Hong Kong stock exchange’s planned third board.
A dual-class stock structure allows the issuing of various types of shares by a single company, where the different classes have distinct voting rights and dividend payments. Two share classes are typically issued: one for the general public, and the other to company founders, executives and family.
Critics have argued that the change would be detrimental to the rights of minority shareholders in Hong Kong.
Wednesday’s court decision indicates a greater willingness in Hong Kong to accept such structures. Not only will “one share, one vote” not apply in the vote at TVB’s annual general meeting, but Li Ruigang’s CMC Capital also has such a structure. Li has 86 per cent of voting rights of CMC, despite owning only 26 per cent of its shares.