Exclusive | Regulator’s U-turn paves way for dual-class companies to raise funds in Hong Kong in pilot plan

Companies with multiple classes of shares among their shareholders may be allowed to raise capital in Hong Kong by the middle of 2018, as the city’s Securities&Futures Commission (SFC) backs away from its position on the “One Share, One Vote” principle, which has been a pillar of the local capital market since the 1980s.

A pilot scheme will be launched next year, whereby certain start-up companies that have attained the so-called unicorn status – valuations exceeding US$1 billion – will be allowed to raise capital on the main board of the Hong Kong stock exchange through initial public offerings, if they put in place sufficient investor protection provisions, two sources told the South China Morning Post.

The protection provisions may include a sunset clause that compels the companies to set an expiry time, or conditions, for the different classes in their shareholding structure, the source said.

The stocks listed under this pilot programme will also need to be designated with a special code to distinguish them from other listed companies, for reminding investors to be aware of potential risks, the source said. The pilot plan could be widened if sufficient number of high-quality companies are attracted to Hong Kong without regulatory problems, the sources said.

The SFC’s about-turn is a major step forward in helping Hong Kong compete with global capital markets including New York, Singapore and Shanghai, especially in attracting technology and new economy companies to raise capital.

Hong Kong lost its crown as the world’s favoured destination for companies to raise funds this year, falling behind New York and Shanghai. Between January and June, the city’s stock market raised US$5.8 billion worth of IPOs, a drop of 19.5 per cent from the US$7.3 billion it raised in the same period in 2016, when it was ranked as the leader for new listings worldwide.