HKEx seeks views on dual-class share structure reform after Alibaba loss
Exchange is seeking views on whether listing rules should be changed to allow the controversial practice after losing the Alibaba IPO to New York
Hong Kong Exchanges and Clearing is seeking views on whether the city should change the listing rules to introduce the controversial dual-class share structure in a bid to compete with the US after losing the listing of Alibaba to New York and draw technology firms to list here.
"Almost 25 years have passed since the restriction on weighted voting right structures was implemented in the listing rules," said David Graham, HKEx chief regulatory officer and head of listing, adding the time is right to review the issue though he said the exchange has no position on the matter. It may keep the rule if the consultation showed opposition to the change. If the proposal garners supports, it will have a second consultation on how to implement it.
The exchange started consultations yesterday on the change which would allow companies such as mainland e-commerce giant Alibaba, London-listed Jardine Matheson and US-listed English football club Manchester United to have special shareholding structures to list here.
These firms have dual-class share structures that allow one class of shareholders to have more rights than others, a practice banned in the local stock exchange since 1989.
Christopher Cheung Wah-fung, legislator for the financial services sector, said HKEx needed to give details on how to protect the interests of retail investors before the public could decide if it would support the rule change.
A spokesman for the Securities and Futures Commission said the regulator "welcomes the release of the exchange's paper dealing with an issue which has given rise to widespread views and commentary in Hong Kong and further afield. We express no views on the merits of allowing weighted voting rights in whatever form".
The exchange paper also asked if it should allow only newly listed companies to adopt such a structure and ban existing firms from making the shift. It also asked if it should be restricted only to technology or innovative companies. It also wants to know if the public wants to keep the main board rules unchanged but revamp the Growth Enterprise Market, or introduce a separate board for companies with unique shareholding structures, as suggested in June by the government's Financial Services Development Council.
The exchange's move came after it refused last October to give Alibaba an exemption for the dual-class share rule. Alibaba wanted to list in a way that would allow its founder and key executives to nominate a majority of the board even though they only hold a minority stake.
At the time, the SFC said it believed an exemption would go against the one-share, one-vote principle in Hong Kong.
Alibaba then took its listing to New York, where the dual class share system is allowed. It is due to start a roadshow soon.
Besides Alibaba, the exchange paper showed it lags the US in getting information technology firms to list here. At the end of May, a third of the 102 mainland companies listed in the US have dual-class share structures and 70 per cent of them are IT companies. In Hong Kong, only 6 per cent of newly listed companies from January 2010 to December 2013 were IT firms.