Hong Kong stock exchange’s plan to attract tech listings by expanding dual-class shares structures gains traction
- Reform paves way for more than 38 US-listed mainland tech giants, including Tencent Music, to list in Hong Kong
- Rule changes came as growing number of US-listed mainland firms want to list in Hong Kong
Hong Kong Exchanges and Clearing has gained support among fund managers and stockbrokers for its mooted plan to attract more tech giants to list in the city by allowing expanding the use of dual-class shares.
The city’s exchange has proposed allowing corporate shareholders, as well as founders and key managers, to own shares with more voting rights than other shareholders. The exchange is collecting views on its plan until Sunday.
While fund managers and stockbrokers remain wary of allowing a handful of shareholders to exercise overweening influence on a company’s future, they hope more safeguards will protect ordinary shareholders.
About 42 per cent of all US-listed mainland tech firms have WVR structures while 84 per cent of the 50 biggest technology unicorns in mainland China have corporate shareholders, HKEX said in its proposal.
“It is a logical move for the HKEX to expand the listing reform further. If an individual can hold the shares with more voting rights, a corporate shareholder should also be allowed to do so,” said Clement Chan Kam-wing, managing director of accounting firm BDO.
The three together commanded a market value of about HK$5.3 trillion (US$679 billion) at the end of 2019 – or 14 per cent of the market capitalisation of all companies listed in Hong Kong.
The proposed rule change will make Hong Kong a more attractive listing venue, according to Stephen Chan, a partner at law firm Dechert.
“The new rules would particularly benefit any innovative businesses that are a part of an ecosystem of companies, or those that are locked in a corporate structure after rounds of pre-IPO funding,” Stephen Chan said in a written interview.
Hong Kong Investment Funds Association, the industry body for international fund management companies operating in the city, consider the safeguards already proposed by the HKEX inadequate.
It believes that the sunset clause limiting the WVRs shares by corporate shareholders to no more than 10 years, with an option to renew by no more than five years subject to the approval of independent shareholders, is too long.
The HKEX should cut it down to five years with a renewal of no more than three years, subject to independent shareholders' approval, said Bruno Lee Kam-wing, chairman of Hong Kong Investment Funds Association.
“The listing applicant should understand that corporate WVR class share is a privilege and that it does not come as a default,” Lee said.
The association also urges the exchange to allow tech companies to have either individuals or corporate shareholders with WVR, and not both.
Financial Services Development Council, a government body says the HKEX proposal could enhance the competitiveness of Hong Kong as a listing venue while safeguarding the interest of the investors.
Market capitalisation requirements for a corporate shareholder to own WVR shares limit the number of candidates to less than 300 firms globally, the council says on its website.
HKEX’s proposal will limit WVRs to companies with a market cap of at least HK$200 billion, and they must own at least 30 per cent of the company to be listed.
