Loss of Alibaba IPO spurs calls for reforms of Hong Kong listing rules

Lauded by many for its principled stance in rejecting Alibaba Group’s plans to list shares, the Hong Kong Stock Exchange has left the city’s financial community fuming at a lost opportunity and re-ignited calls for market reforms.

The Chinese e-commerce giant founded by billionaire Jack Ma failed to convince Hong Kong regulators to waive rules over the group’s unique partnership structure – specifically that 28 partners, mainly founders and senior executives – would keep control over a majority of the board, even though together they own only about 10 per cent of the company.

An inflexible Hong Kong’s loss is likely to be New York’s gain – as NYSE Euronext and the Nasdaq OMX Group battle to attract what is expected to be one of the world’s largest stock offerings in the last five years.

This has left Hong Kong’s banking community ruing the one that got away and blaming arcane regulations for missing out on a fast growing Chinese internet stock – and an IPO fee bonanza.

In denying Alibaba special status, Hong Kong’s regulators made clear they’re not willing to compromise when it comes to safeguarding small investors and treating all shareholders alike.

Deal bankers, lawyers and advisers in Hong Kong queried whether regulators couldn’t have done more to accommodate a company that wanted to list in the city, is worth an estimated US$80 billion, and rising, and would have boosted a thin pipeline of initial public offerings at a time when Hong Kong Exchanges and Clearing’s (HKEx’s) net profit is about a fifth below what it was three years ago.