British regulator backs Hong Kong stance on Alibaba IPO
As city debates listing rules, former SFC chief warns against changes to suit market fad
Britain's top financial regulator said Hong Kong was right to reject Alibaba's request for special treatment to secure its lucrative listing and warned the city's regulators not to repeat London's mistake and change its rules to suit market fads.
Martin Wheatley, the chief executive of the Financial Conduct Authority (FCA) and the former chief of Hong Kong's Securities and Futures Commission, told the South China Morning Post yesterday London was tightening the rules it made during the dotcom boom of the late 1990s.
"No matter how difficult it would be to lose a very high-profile company to list, it is important to keep the principle to protect shareholders' interests. The SFC has done a good job in doing it," Wheatley said.
"This brings up the question of whether it is a good idea to change the listing rules to attract certain companies, particularly when you need to change the rule that violates the really important principle such as one-share, one-vote. It is also a problem once you set a precedent. There are lots of companies that would come up with different good reasons for special structures."
He said the saga of Alibaba, which decided to have its HK$100 billion offering in New York after Hong Kong turned down its request to change the listing rules, was similar to an event in Britain in 1999.
At the time, a big internet company urged the London Stock Exchange to change listing rules or risk losing out to the technology-heavy Nasdaq exchange in New York. The bourse acquiesced and saw a flurry of hi-tech stocks list.
"But the market fell apart in 2001 when the dotcom bubble burst and investors lost their money," Wheatley said.
The FCA is in the process of changing the rules to boost shareholder protection in firms with dual-share structures.
Alibaba wants to list in a structure that allows its founder and certain senior executives to nominate a majority of the board even though they hold only a minority of shares.
The SFC believes this violates the "one share, one vote" principle so it rejected the request, causing some in the market to question whether it might be time to amend its listing rules.
SFC chairman Carlson Tong Ka-shing said yesterday there was no need to change Hong Kong's nearly four-decade ban on dual-share structures.
"If a particular group of shareholders can control who will sit on the board, they will control the management of the company. This will not be a problem when the company is doing well," Tong said. "However, when the company is performing badly or when the major shareholders have disputes with the management, there would be problems as the other shareholders could not change the board or the management."