Investors want Hong Kong's IPO rules unchanged

Hong Kong listing regulations do not needto be altered after losing Alibaba, poll finds

PUBLISHED : Wednesday, 16 April, 2014, 1:21am
UPDATED : Wednesday, 16 April, 2014, 4:22am

Global institutional investors are urging Hong Kong not to change its listing rules even after losing the mega listing of e-commerce giant Alibaba, according to a survey by the Asian Corporate Governance Association.

Those surveyed, 54 global institutional investors managing a combined US$14 trillion of assets, warned they would on average give a 19 per cent price discount to Alibaba's valuation if it lists with its special shareholders structure intact.

They also said they would on average put a 13 per cent discount on the Hong Kong market valuation if the city allows a non-standard shareholder structure to accommodate Alibaba-like listings.

"The Hong Kong government and regulators should do nothing with the existing listing rules. The one-share-one-vote principle in Hong Kong has worked well for many years, providing all shareholders with fair treatment," said Jamie Allen, secretary-general of the association, which has 100 global institutional investor members including some of the world's largest fund houses, pension funds and insurers.

The survey, conducted on association members early this year, came after Alibaba was reported in October to be in talks with Hong Kong Exchanges and Clearing to list with a share structure that would allow its founders and top management to nominate most board members despite holding a minority stake.

The exchange refused to grant the exemption because the Securities and Futures Commission felt such a structure would be in violation of the one-share-one-vote principle. Alibaba last month said it planned to list in the US, which allows the dual class share structure.

If Alibaba lists with the structure, 71 per cent of respondents said they would not buy the stock or buy it at a discount ranging from 5 to 50 per cent.

HKEx chief executive Charles Li Xiaojia has written several times on his blog since September on the need to relook at listing rules for "innovative" companies, but institutional investors are opposed to any change.

Twenty-eight per cent of the respondents gave a "bad" rating to HKEx in its manner of handling Alibaba, compared with 2 per cent "bad" each for the SFC and the government. In comparison, 41 per cent ranked the SFC "good" in its handling of the Alibaba issue.

Michael Cheng, the association's research director of mainland China and Hong Kong, said some years ago London had allowed the dual class structure but that did not lead to more listings.

Mark Chan, finance partner at law firm Berwin Leighton Paisner, said: "In the US, there is a more disclosure-oriented approach as well as a culture of litigation. Investors don't need the exchanges to protect them as much as they do in Hong Kong."