GEM rule change seen as 'flexible' solution to Alibaba listing impasse
Growth Enterprise Market could accommodate special shareholder structures, says lawmaker
Hong Kong's stock exchange could consider changing its listing rules to allow mainland e-commerce giant Alibaba or other technology companies to list on the Growth Enterprise Market with special shareholder structures, according to brokers and the legislator who represents the financial services sector.
Lawmaker Christopher Cheung Wah-fung said yesterday that some brokers believed changing the GEM listing rules was an option that would allow Alibaba to list here with a special structure.
"Many would be against the idea of changing the main board listing rules as they cover a majority of Hong Kong companies. However, changing the GEM listing rules, for the second board in the city, may be more acceptable," he said.
"The GEM is supposed to be the Hong Kong version of the US Nasdaq, tailor made for technology or newly created firms to raise funds. It is therefore worth looking at whether we should change its listing rules to attract more technology giants such as Alibaba."
The GEM does not require companies to have a profit record, in contrast to the main board which requires companies to have made at least a combined profit of HK$50 million over three years before listing.
"Investors who trade in the GEM know this is a market riskier than the main board," Cheung said. "As long as the GEM companies made full disclosure to the investors about their special shareholding structure, it would allow more flexible choices for listed companies and more choice for investors."
Hong Kong Exchanges and Clearing (HKEx) and the government-appointed Financial Services Development Council have said separately that they will review local listing rules this year.
It is understood that Alibaba had wanted to list under a structure that allowed its founder and senior executives to nominate most of the board members, despite their holding minority stakes. The Securities and Futures Commission signalled its opposition to such a move.
A fund manager, who did not want to be named, described Cheung's idea as "innovative" but said it would change the nature of the GEM.
"GEM is supposed to be for newly set up, small companies to raise funds and for them to grow big enough to upgrade to the main board," he said. "Alibaba … may not like the idea of listing on the GEM, which is for the small companies."