Brokers and fund managers back special listing boards

Brokers and fund managers support proposal that may allow firms with unique structures to float but also raise concern over investor protection

PUBLISHED : Monday, 23 June, 2014, 3:08am
UPDATED : Monday, 23 June, 2014, 3:08am

Brokers and fund managers generally support a proposal by a top government advisory body to introduce new listing boards to cater to different companies and investors, bringing the city in line with markets such as New York and London.

However, they warn that these boards, which may attract companies with special shareholding structures such as mainland e-commerce giant Alibaba or British conglomerate Jardine Matheson, could pose problems in terms of investor protection.

"The recommendation appears on the surface to be a practical solution, allowing different corporate structures and governance without compromising the existing rules in much the same way that enterprise boards in many other jurisdictions operate," said Mark Konyn, the chief executive of Cathay Conning Asset Management.

The flip side of the coin is ... fairness and investor protection issues
Clement Chan, president, HKICPA

"However, if it is used as a way to circumvent rules and requirements by companies that would be expected to operate with best practices, then it is difficult to see how this recommendation will improve the overall standards of corporate governance and protect minority shareholder rights."

The Financial Services Development Council last week proposed the creation of several listing boards, including one specialising in companies with unique shareholding structures, to meet the needs of different investors and companies.

The report came after the city lost the huge initial public offering of Alibaba Group Holding to New York because the stock exchange refused to exempt the mainland e-commerce giant from listing in a structure allowing its founder and certain executives to nominate most of the members of the board even though they held minority stakes.

The Securities and Futures Commission considered this a violation of the "one-share, one-vote" principle which is strictly adhered to in Hong Kong but not in the US.

Timothy Lo, the managing director of French private bank CIC Investor Services, said he was opposed to introducing special boards because it would violate the one-share, one-vote rule.

Lo said the proposal would be seen as showing "favouritism" to some companies and would generate public mistrust in the government and the regulator for doing so.

"In fact, we already have two systems, one for the main board and the other for the Growth Enterprise Market," he said.

Hong Kong Institute of Certified Public Accountants president Clement Chan Kam-wing said from the commercial point of view it might be good to have a separate board to cater for companies with share equity structures different than "one share, one vote".

"It would address the question of the lost opportunities that the Hong Kong market has suffered so far because of this issue," Chan said. "However, the flip side of the coin is obviously fairness and investor protection issues, which have been one of the strong selling points of the Hong Kong equity market."

He said unlike other markets such as the US where investors could sue the "corporate big boys" through class action to seek claims, Hong Kong law did not provide for such suits, which meant individual investors would find it hard or too expensive to sue for their own interests.

Principal Financial's Asia president Rex Auyeung Pak-kuen supports the introduction of different boards.

"I see no harm in establishing different rules to regulate institutional investors as their investment objectives are different [and] their ability to analyse financial data is far greater than a retail investor," Auyeung said. "The challenge is that the rules have to be transparent and easy to understand for all investors."

Joseph Tong Tang, an executive director of Sun Hung Kai Financial, is also for the proposal because mature financial markets such as New York and London have similar set-ups.

"It is fine to have separate boards to fit with different investors with different risk appetites … as long as each board has specific listing rules applying to these companies while investors are fully aware of the risks," Tong said.