HKEx and regulator at loggerheads over listing rules reform

Mainland e-commerce giant takes Hong Kong authorities to task as differences crop up between HKEx and SFC over rule review

PUBLISHED : Friday, 27 September, 2013, 12:00am
UPDATED : Friday, 27 September, 2013, 2:31am

Alibaba tore into Hong Kong authorities for rebuffing its IPO plan, adding fuel to the rift between the stock market authorities and the regulators over whether or not to order a review of the city's listing rules.

Executive vice-chairman Joe Tsai called Alibaba's structure, in which a group of insiders make all key operational decisions, a "living body" intended to preserve the company's culture.

"We understand Hong Kong may not want to change its tradition for one company, but we firmly believe that Hong Kong must consider what is needed in order to adapt to future trends and changes," Tsai, who is also a co-founder, wrote in the company's first public comments since news it had decided to go public in the United States instead of Hong Kong in a planned HK$100 billion share sale.

The HKEx should not allow exemptions … but seek ways to move forward

"The question Hong Kong must address is whether it is ready to look forward as the rest of the world passes it by."

Hong Kong Exchanges and Clearing is understood to favour a review of the rules to attract technology firms to list here, but the Securities and Futures Commission is sticking to its guns.

In his personal blog, HKEx chief executive Charles Li Xiaojia yesterday used a "dream" analogy for the "voices" in his head arguing the pros and cons of revisiting the rules. The blog was posted the same day as banking sources said Alibaba had given up plans to list in the city and was instead lobbying the US authorities to accept its controversial executive partnership structure.

Under the corporate structure Alibaba wants to retain, the top management will nominate the majority of board members. Such a structure would give chairman Jack Ma Yun and his top aides - who own about 10 per cent of the company - complete control of the board. The company is 24 per cent owned by US internet firm Yahoo and about 37 per cent by Japan's SoftBank.

The SFC and the exchange's listing committee have made it clear that no exemption will be provided for any company because local listing rules do not allow preferential treatment for one set of shareholders.

But several HKEx directors said they were fine with a review.

"The HKEx should not allow exemptions to individual companies but it should seek ways to move forward. There is no harm in having a public consultation to see if the public and the market support a change of regulation to meet some companies' needs," said a HKEx director who did not want to be identified.

A source close to the SFC, however, said he saw no need for such a consultation. "Changing the listing rules to allow a certain group of shareholders to have more power than the others is not ideal," the source said.

Christopher Cheung, legislator for financial services sector, sided with the SFC. "A fair and equal treatment to all shareholders is important for investor protection. The HKEx should not change the listing rules for the sake of attracting certain companies to list here," Cheung said.

Shareholder rights activist and former HKEx director David Webb yesterday called for a new regulator to replace the stock exchange with a new body to approve or reject listing applications.