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HKEX

HKEX rekindles plans for dual-class share structure in Hong Kong

Launch would attract more technology and new-economy firms to list in city, says Charles Li; SFC fails to endorse move ‘until proposals more fully developed’

PUBLISHED : Thursday, 19 January, 2017, 3:27pm
UPDATED : Thursday, 19 January, 2017, 10:57pm

Hong Kong may change its listing rules and introduce a dual-class share structure after the exchange operator said it plans to consult the market on the launch of a third board in an effort to attract more listings by technology and new-economy firms.

Top of the agenda was the controversial issue of whether a dual-class shareholding structure should be allowed, Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia said on Thursday.

The bourse consulted the market two years ago on the dual-class structure, which, if it were to go ahead, would have allowed one class of shareholders more rights than others.

However, the Securities and Futures Commission opposed the proposal due to what it claimed was insufficient investor protection – a subject that is likely to dominate discussions this time round again.

“Consultation on the third board will cover the dual-class shareholding structure, which companies should be [allowed] to list and who should be allowed to trade,” Li told the media briefing. “There should also be a delisting mechanism to remove poor performers from the board.”

Consultation will cover the dual-class structure, which companies should be [allowed] to list and who should be allowed to trade. There should also be a delisting mechanism to remove poor performers from the board
Charles Li, chief executive, HKEX

Li said the third board could be home to different types of companies, be they start-ups with a good potential or well-established companies that wanted to be listed with a dual-class structure. Some companies could be for professional investors only while others could be for everyone, he added.

He said the exchange would involve the SFC and investors in the consultation in an effort to ease their concerns.

“We will have discussions with the SFC and hope to work out a future direction,” Li said.

SFC chairman Carlson Tong Ka-shing welcomed HKEX’s efforts to further develop the city as an international equity fundraising centre, saying he supported the “overall objective to open its listing market to a more diverse range of quality issuers”. But he said he could not comment further “until the proposals are more fully developed by the exchange”.

Many global internet firms such as Google and Facebook trade their shares with a dual-share structure, which is banned in Hong Kong but allowed in the United States.

E-commerce giant Alibaba Group Holding opted to list in New York rather than Hong Kong in 2014 after the SFC refused its request for what it considered as a dual-class shareholding structure.

Alibaba chairman Jack Ma Yun has told the South China Morning Post that Hong Kong’s listing regime is outdated and does not meet the needs of new-economy companies. Alibaba owns the Post.

I do not agree with its idea to allow companies with a dual-share structure to list in Hong Kong as it is not fair to all the shareholders
Mark Mobius, executive chairman, Templeton Emerging Markets Group

Market players have mixed views on the issue, with listed companies and investment bankers preferring a dual-share structure while fund managers generally oppose it.

“HKEX could launch a new board to attract more start-ups or technology firms to list. However, I do not agree with its idea to allow companies with a dual-share structure to list in Hong Kong as it is not fair to all the shareholders,” said Mark Mobius, the executive chairman of Templeton Emerging Markets Group.

The bourse also planned to launch gold and iron ore contracts this year and a primary connect system aimed at attracting international companies to list in Hong Kong, which could then be offered to mainland Chinese investors through the Shanghai and Shenzhen stock links, Li said.

“Major international players such as Apple or Walt Disney might consider listing in Hong Kong and offering their shares to mainlanders [through the stock connect scheme],” he said. “This will strengthen Hong Kong’s status as a listing hub and offer more choices for mainland investors.”

At his briefing, Li also said the exchange would continue to reform the poorly performing Growth Enterprise Market and introduce a new platform for private companies to disclose their financial information while working with the mainland to expand the stock link to bonds, exchange-traded funds and commodities.

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